How to determine trends

The methods for judging trends are not fixed and there are various ways, such as:

1. Determine whether the future trend is upward, downward, or oscillatory based on the macro pattern of fundamentals.

2. Detecting the trend of the market through technical analysis

3. Based on the previous trend, determine the future trend by judging the duration or reversal of the market.

Among these three methods, the third one is relatively unknown, but in fact, it is the most practical. Real stock traders actually know that even in a period of strong upward trend, investors are always skeptical about whether the market is going to reverse. The truth is simple. If everyone thinks the price is going to rise, who else would sell their stocks? So the trend is not static, at least in the eyes of stock market authorities, they need to constantly distinguish whether the trend is sustained or reversed.

　　How to determine if a trend has reversed

Through the above discussion, it is clear to all investors that the most crucial issue in stock trading is how to determine whether the trend has reversed. In order to determine whether the trend has reversed or not, we will specifically discuss the theory of percentage retracement today. This theory applies to major trends, minor trends, and short-term trends.

　　Percentage drawdown theory

1. There are three relevant data for drawdown: 33%, 50%, and 66%; (There are other theoretical systems such as 38%, 50%, and 62%, but the general meaning is the same. In comparison, 33%, 50%, and 66% are more widely used.)

2. Three sets of data represent, taking the upward trend as an example:

When the price retraces to within 33% of the previous market trend, it is considered a normal adjustment, and the trend will still hold, indicating that the market remains strong.

When the price retraces to between 33% and 50%, it is still considered a normal adjustment, but it indicates that the trend may change, and the market tends to be stronger at this time

When the price retraces to between 50% and 66%, it indicates a weak trend and a possible reversal, indicating a weak market trend.

When the price drops below 66%, it is announced that the trend has undergone a fundamental change, and the drawdown ratio will move towards the 100% price level.

3. The three lines represented by the backtesting ratio can be seen as corresponding support and pressure lines, as shown in the above figure. When the stock price retraces to around 66%, it gains support and the upward trend continues.

　　Practical skills for percentage drawdown

1. When predicting a trend based on the percentage retracement theory, two points need to be selected, which should be the lowest and highest points in this trend (taking an upward trend as an example, it is generally believed that the lowest point in this market is the starting point and the highest point is the end point of the market stage). Draw three lines of 33%, 50%, and 66% based on these two points.

2. In predicting whether the trend can continue, it is based on the price range that provides support for the stock price.

3. The pullback rate maintains a trend within 66%, and the trend direction is stable; Pulling back to between 50-66% indicates that the trend is not very strong, but still positive; Pulling back to between 33-50%, the trend is difficult to sustain; A pullback below 33% indicates that the trend is still over.