Getting Started with Technical Analysis | Lesson 3

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Into a series of eight lessons, it's intended to bring a new trader using charts for the very first time along into this world of using technical analysis so this is lesson three. We're going to be getting into a skill that for some traders they they might consider this to be their number one priority in developing skill, skill regarding technical analysis or charting. It's called trend identification. So lots of ways that it can be done. We're going to be taking a look at two primary ways. One that's going to be manual, and one that's going to be a little bit more mechanical. So should be a great discussion before we can get to that. Though let me first of all say hello to everybody out there on YouTube, hey there Greg and Will, Robert Wiley, Alfred Ricebird, Life in the Fast Lane Tony, who else is there Robin, for Checkout Two, and everybody else; thanks for joining us week after week, we really do appreciate your attendance your contributions.

These discussions are going to be a lot of fun! If you're here for the very first time, I want to welcome you as well. And if you're watching on the YouTube archive after the fact, enjoy the presentation, but be aware that you're invited to join us in a live discussion-this one kicks off promptly at 2 o'clock Eastern Time. Tuesdays, we'd love to have you here, but uh another heads up, I want to let you know that my very good friend Barb Armstrong is going to be hanging out in the chats with the live audience. Her role is going to be to address any questions that I can't get to just during the flow of the presentation as long as they're on topic. Bob's there, Barb's there to pick up my slack.

Thanks for being there, Barb! And I would like to issue an invitation to you-if you're not following us on X, please do that. It's the best place to connect with your favorite presenters in between the live streams. Those of you who follow Barb know how active she is. on x best place to get some some good insights from her when we're not in these in these webcasts but you can find barb there at barbarmstrongcs you can find me at cameronmaycs all right but let's get into it and we as we move to our discussion of charting of course we need to pause first of all to consider the risks associated with trading or investing just remember that the information here is for general informational purposes only it should not be considered an individualized recommendation or endorsement of any particular security chart pattern investment strategy schwab does not recommend the use of technical Analysis as a sole means of investment research and investing involves risk, including the loss of principal.

Okay, so with that important information, let's uh, let's revisit where we've been over the last few weeks. So in Lesson One, we provided just a an over a general overview of what technical analysis is, and how it might be typically accomplished. Then we focused up, we focused on Lesson Two, getting acquainted with the navigation of charts for the first time. Now today, we're going to be getting into specific technical analysis applications beginning with what some consider to be their most important skill. Trend identification: those of you who have used uh technical analysis in the administration of a self-directed portfolio, well, actually, whether it's paper money or real money, it doesn't really matter. Just chime in and let me know if you agree with the statement that a trend can really erase a lot of the other mistakes can be made with technical analysis.

Maybe the timing is a little bit off, but if the trend persists, that can erase the little timing errors and and assist the trader in beginning to become successful. Anyway, now, if we get the trend wrong, even if our timing is great, the trader might still struggle. if they're trading against a persistent trend so the trend identification can be a big deal for technical traders so let's revisit uh well let's set an agenda that we're going to revisit um a bit of the discussion that we had in lesson one but here's what we're going to do through the rest of today's webcast we're going to cover first of all some tenets of technical analysis and then we're going to cover some of the

other tenets of trends and we're going to preface that with some with a recap of the tenets of technical analysis then we're going to get into a couple of different methods for trend identification some traders prefer to bring your own expertise and your own experience to a chart and identify the trends for yourself, others prefer to lean more on mechanical tools that generate sort of an automated view of trends, for better or for worse. Neither of these approaches are perfectly um well they're not perfect, right? They all come down to preference. But we're going to talk about them both and we're going to illustrate them by looking at examples on charts using some real-time information to really make this learning real and to and to apply uh to give some application to theory okay so going back to that lesson one overview some Basic tenets of technical analysis really began with the idea that prices tend to move in trends-up, down, or sideways-and for some technical traders,

skilled traders tell you that half of the speed of a chart is up, now every red candle it discounts everything. It means that essentially everything that there is to know from an economic standpoint, from a fundamental standpoint regarding stocks or tradable securities is already known by the markets and is reflected in current prices. So for example, we could go out and do our own fundamental research on a stock. And for technical traders who subscribe to the idea that the markets discount everything, they might consider that to be maybe potentially beneficial, but finding something the market's not already aware of and the market already hasn't priced in might be, for those traders, sort of an effort in futility. Doesn't mean it can't happen, right? But the current price is the representation of current collective market knowledge.

And finally, there's an assumption that history repeats everything. And that's not true. It's not true. It's not true. It's not true. It's not true. It repeats itself or looks similar, provided similar conditions to historical timeframes. Humans tend to react similarly in similar situations, and that can be built into chart assumptions and trade planning. So, that's just a quick recap of those tenets of technical analysis. If you want to see them in greater detail, you can go back to lesson one. But let's move on to the tenets of technical analysis that pertain to trends specifically. Now, trends, really are a reflection of supply and demand. So we need to be acquainted with the definitions of those two terms. So, supply is the number of shares available.

In other words, the number of shares that are being offered by sellers. Demand is the number of orders for shares at a certain price. So, that's essentially the demand provided by buyers in a marketplace. And it's that balance struck between buyers and sellers that conceptually drives price and drives trends ultimately. Now, an uptrend reflects stronger demand that exceeds supply at the current price. So if there continues to be more and more demand exceeding supply, prices will tend to rise. And that can display itself in an upward trend. A downtrend reflects excessive supply, and price will tend to drop until enough buyers come into the market to match the sellers. And for a technical trader, the assumption is if there's an imbalance between buyers and sellers, that that imbalance may persist.

And that may, for that technical trader, present an opportunity if they can recognize the trend and trade in the direction of that trend. Of course, none of it is a guarantee of performance on any individual trade. But those are the basic tenets of technical analysis. So that sort of is the underpinnings of a trend. But how do you do that? Well, first of all, you have to be able to identify a trend. How do we identify a trend? When we bring up a fresh new chart, how might a trader, or what might a trader be looking for from that chart? Well, here's a decent graphic that can illustrate trend identification through sort of a manual approach. And that trend identification consists of one's ability to identify three phases of the stair-stepping patterns that stocks tend to move in.

So, those three phases are rally, equilibrium, and pullback. So, just to set the stage here, comparatively rarely do we see stock prices just go straight up, white candle, white candle, white candle, after white candle, or straight down, red candle, after red candle, after red candle, after red candle. Instead, trends will tend to present themselves as sort of a stair-stepping or a wave-like pattern as we're going up, or as we're going down, or as we're going up. Each of those waves of those stair-steps consist of three phases, rally, equilibrium, and then pullback. Equilibrium, rally, equilibrium, pullback. So, a rally is when high demand exceeding supply drives price higher. So, there's an example right over here in our graphic where price is rising conceptually because the number of buyers is the number of sellers for that time frame.

Now, typically within relatively short order, as price rises, those buyers, well, they're having to pay higher and higher prices that can reduce the demand in the short term. And those higher and higher prices can intrigue and attract new sellers, and bring the number of buyers and sellers into equilibrium. This is where stocks movement slows or stops as supply meets demand or vice versa at the bottom of one of these short-term cycles or stair steps. And then the stock might hit a period where we see a pullback. This is also known as a retracement when supply is too high for demand. So, price slips back down until that supply-demand equilibrium is reestablished at the low end of the cycle. So one can envision here, if there are more sellers than buyers, maybe the sellers are attracted by the high prices in the short term.

Maybe the buyers are discouraged by the high prices in the short term. Well, that imbalance of sellers versus buyers tends to drive price down again until the prices are no longer attractive to sellers. They're more attractive to buyers. Equilibrium is established again, and maybe the price begins to repeat that cycle. So this rally, equilibrium pullback cycle, it's not just an individual cycle that might be interesting to a technical trader in establishing where they see the trend heading. But instead, what they might do is compare the highs within those cycles, one with the next, and the lows within those cycles, one with the next, to determine where their trend is. So this is a discipline that's used by manual traders of bullish trends, bearish trends, or neutral trends. So let's talk about uptrend identification, okay?

An uptrend, often described as a bullish trend. Remember, we talked about bullish before. I'm going to continue to use that phrase to mean, or to refer to stocks that one sees as going higher currently, or one expects to continue going higher. Those stocks we see as being bullish. We kind of use that phrase because at least this is the way that I've learned it, and the way that I think about it. When bulls attack, they strike with their horns upward. To the opposite extent, when bears attack, they'll swipe with their paws downward, or their claws downward, right? Yeah, so an uptrend is often described as a bullish trend. And for manual technical traders, this might be defined as a series of higher highs and higher lows.

So we might be looking for rallies, hitting equilibrium and pulling back, doing a pullback here, but we're looking at the highs between pullbacks and comparing those, one to the next. So if we have a high that exceeds the previous high, that stock might be, well, this might be uptrending, but the trend label is finally, or ultimately applied, if that's paired with higher lows. So we look at the lows between cyclical peaks, and if those are also consecutively going higher and higher, consistently going higher and higher, the pairing of higher highs and higher lows for those manual traders is a common identifier of an upward trend. Now, traders can expect the price action to continue going higher, the assumption here being that there's an imbalance between buyers and sellers.

The buyers have control, pushing price higher. And the assumption is that that's likely to continue. And those traders will then attempt to profit by buying the stock or engaging in other bullish strategies, and that's going to be a little bit more complicated, but we're going to stick with just stock examples in this series. But the uptrend is considered broken when price dips below the prior or the most recent low. So in our hypothetical, or our historical example here, this green dot here, somewhere between February and March on our chart, currently is the most recent low. And just envision, if the price were to pull back from this high and go all the way down to that low, well, there may be a tipping of the scales here. More sellers coming into the equation.

Maybe there's some pessimism for the stock that wasn't there before. Maybe the collective knowledge of all the participants in the marketplace has shifted their outlook, and that's showing up as cyclical lows now going lower. Okay, that might signal to the trader that the uptrend is done. Is it a guarantee? Of course not. So let's go look at this. We've seen, you know, historical example just genericized here. Let's go have a look at a more current example. So here we have Colgate Palmolive, which has had a great run over the last 12 months. And you might notice that rather than just rising straight up, CL has gone through a series of higher highs and higher lows, stair-stepping up. So running up for a period, experiencing a rally, reaching equilibrium, pulling back to an equilibrium point again, establishing a low.

And a trader might look at this chart and just compare the lows within each of these cycles and note that they've been going higher for really the entire last 12 months. They might look at those highs and note that they've also been going higher. Now, one thing I want to point out here, sometimes these cycles are relatively quick. We might go from low to low or from high to high. Over a period of just a few weeks. At other times, it might stretch out a little bit longer into a couple of months. So there's certainly going to be some discretion here. And at the time one is trying to identify these, there's going to be some pressure in correctly identifying the current trend.

And even if we think that we've got it nailed, there's still a possibility that the stock is just going to do what it's going to do and it goes the other direction. But yeah, this is a pretty, I think, a fairly good example of an uptrend that a manual analyzer of trends might be looking for, although look what's happened very recently. We hit a peak here, September 5th. There's that pullback that terminated, looks like, right there around September 20th. And then we got a very shallow rally. We hit a high right here. Let's replace this oval. I'm going to remove that drawing. Let's replace it with just a, let's go with the horizontal line. There we go.

So you can see that rally here didn't exceed the previous high, but in the case of an upward trend, what the trader really might have their eye on is, did we also break down below the low? Yeah, at this point, regardless, this might turn out to be the new low, but it might still persist even lower. In any case, we know now that at least through this one, technical lens, we have a lower low to go with a lower high. That is not an uptrend, according to this definition. That is, in fact, a downtrend. Let's talk about downtrend identification. So a downtrend, often described as a bearish trend, as we just discussed, it could be defined as a series of lower lows and lower highs.

So here we see an example with red dots where we're cycling down, moving through these rallies, equilibrium, pullback, equilibrium, in, but we can see that for each of those cycles, each cyclical peak is lower. Each cyclical low is a little bit lower. Technicians in this case expect the price to continue lower and traders might stay out of a bullish trade or use options, you know, or maybe even a stock trade. There are certain types of stock trades I won't get into today, but that can potentially benefit from a downtrend, but they might employ those sorts of bearish strategies rather than just standing aside for new bullish strategies. But in any case, the downtrend here is considered broken when price climbs above a prior, not just a prior high, but above probably the most recent high.

So Wiley, okay, you're starting to get into moving averages. That's a good observation. We're going to be talking about those in just a few minutes here. That's when we're getting into an approach of analyzing charts, not using one's own discretion, but actually requiring a certain amount of time to analyze the charts. And that's when we're going to be recruiting tools to help us identify trends. Okay. Ahmad says, how do we put the dots on the chart? So Ahmad, that's just, in this case, it's just a graph that's been added to a slide. It's not actually a function on thinkorswim. There are all sorts of technical tools that can be used on a chart, or drawing tools that can be used on a chart. So maybe I'll illustrate some of those.

But in any case, let's go have a look at a stock like UPS? So with UPS, our, our manual analyzer of trends might note that boy back here. And even before that UPS hit a peak had a pretty strong, short contraction in price, um, where we, uh, retraced from what, what was that about $159 down to about $143, pretty quick sell-off. There was a, there was a rally, but equilibrium was established here still below the previous highs. So, I think you can start to get a feel for what a technical trader might be thinking here. Wow. We're not even getting back up to the highs that we saw just a few months before, or just a few weeks before, even in this case, just maybe even a few days before, but we topped out here at about 154, had another retracement here, another sell-off.

And in this case, we got down to lower lows than the last cyclical low, up to a peak, down to a low, up to a peak, down to a low, up to a peak. So here we might note that the cyclical highs persistently going lower, the cyclical lows persistently going lower. Okay. Now, just to get to the question here, Ahmad, if you want to put, they're not dots, it's actually, they're technically ovals, but we can make them round if we want to. One of the drawing tools is an oval. So if we wanted to put some ovals on here, you just go to where you want to draw it. And with each of the drawing tools to draw something, we just do one click to start the drawing, and then another click to end the drawing.

There we go. Now I've customized this, mine are blue. I actually right-clicked on mine and I've edited its properties and I changed the color to blue, and then saved that as my default. So that's how we might add a drawing. And of course we can do other sorts of drawings. We can do trendlines, we can do horizontal lines, we can do channels, we can do rectangles. So experiment with those. And once you're done making a drawing, if you want to erase just that one drawing, right-click on it and remove that drawing. Or you can right-click on it and clear all of the drawings off the chart in one swoop, but I'm just going to remove that one drawing. There we go.

Now, before we move on to a discussion of sideways trends, I want to illustrate some of the difficulties that a manual analyzer of trends might encounter here. Because when you look at these lines, how many of you say, oh yeah, I would see that. That's obvious. Right? Yep. We hit a high here. We hit a low there. We hit a high here. We hit a low there. Clearly lower highs and lower lows. This one is obviously a downward trend. Well, hold on a second. What about this period here where maybe the trend is going to be a downward trend? Well, hold on a second. What about this period here where maybe the trader saw that we hit a low, but didn't we rally up to peak here and then back down to a low and up to a peak?

So if we're really splitting some hairs here, for this time frame, were we truly making lower highs and lower lows? Or are those pretty similar highs and similar lows? Yeah. A trader might say, actually, this was more of a sideways trend here. And there was more of the same right through there. This is where the trader's discretion comes into play. And you can have two different trends here. One is a downward trend. One is a downward trend. And the other is a downward trend. And the other is a downward trend. And the other is a downward trend. And the traders with similar backgrounds, with the same levels of experience, and one will say, well, this is a downtrend. And another will say, Cameron, you're crazy. Look at this.

Here we ran up to a peak. We pulled back down to a low. We've gone up to a peak. We pulled back down to a low. We've gone up to a peak. That is an uptrend. Yep. There is discretion in charts that we have to be aware of. It's not a downtrend. It's a downtrend. It's a downtrend. It's a downtrend. It's a downtrend. It's a not always going to be perfectly clear on a chart. And sometimes the trader just has to bring their own experience, make their best estimation of where they think the stock has been going to determine the trend, and maybe place their trades in that direction if that's their approach. But even then, the stock isn't guaranteed to continue going in that direction.

So there can be conceptual shortcomings, no matter what one's approach. But that's going to set the stage for maybe why some traders prefer to automate things, or make them mechanical to some extent. So what about sideways trends? Oh, yeah, we could have changed the timeframe too. Somebody before checkout too just said we could have used an intraday chart, and that can present a very different view. Yes, timeframe becomes important. We're going to discuss timeframe as well, again, in just a few minutes here. So let me throw this out there. If an uptrend is higher highs and higher lows, and a downtrend is lower highs and lower lows, then we're going to have a downtrend. And if an uptrend is higher highs and lower lows, then what is a sideways trend?

Well, it might be tempting to say, oh, then it must be equal highs and equal lows. Equal is a very strong term. Equal is equal. If one thing is equal to another thing, it means they're the same. But it's actually not very common on a chart to see equal lows and equal highs. Let's say a stock going exactly between $40 on the low side and exactly up to $50 on the high side, and back and forth to the penny. Instead, what we might see are roughly equal highs and equal lows. So if an uptrend is higher highs and equal lows, or a term that I'll commonly use is just similar highs and lows. Anyway, so a sideways trend is often described as a neutral trend.

Or yes, you'll hear us use the word consolidation. The price is just consolidating sideways. It's not going up. It's not going down net. It's just going sideways. Can be defined as a series of roughly equal highs and roughly equal lows. Now, with no directional movement up or down, we're going to have a downtrend. So if an uptrend is higher highs and equal lows, for some traders, they might use options to trade this, or they might do shorter term trades between the highs and the lows, just using stocks. But in any case, the sideways trend is considered broken, and a new trend might be emerging when price either climbs above recent highs or falls below recent lows. So let's look at some examples here. All right, let's go to the chart.

Let's have a look at, what's one that was just bouncing around quite a bit? BDX. Yep. Look at this one. Interesting example of a couple of types of trends, and actually even a short-term third type of trend here. But in the case of Beckton Dickinson, you can see that back here in December of 2023, the stock rallied up to equilibrium, up around $248-ish. I'm going to throw in the emphasis that roughly equals. Sold off down to about $232-ish, and then rallied up to a similar-ish peak, a little bit lower high. What might the trader be thinking here? Well, slightly lower high, but what did we have back here? Slightly higher low. Well, if a higher high is a definition of an uptrend, and a, well, higher high and higher low is a definition of an uptrend, lower high and lower low, definition of a downtrend, yes, roughly equal highs or similar highs, roughly equal lows or similar lows can be a sideways trend.

But truly, I'm going to expand that a little bit. Pretty much any other combination of highs and lows, if it's not higher high and higher low, if it's not lower high and lower low, everything else kind of gets lumped into the category of sideways. Think about different combinations that we can have here. Because let's say we can meet here, higher high, but a higher low. That's not going up, it's not going down, that's sideways. We might have equal highs and equal lows. That's sideways. We might have an equal high but a lower low. That's sideways. We might have equal lows but higher high. That's sideways. We might have higher highs but lower lows and then we're going sideways again. You can see my point here.

If it's not higher highs and higher lows or lower highs and lower lows, for a technician, that just might be lumped into that final category of sideways. If the constantly interest rate memory must be in the harvest history, let's make it sideways. So here we get our stock going sideways. And once this has started to establish that sideways trend, the assumption for the trader here might be that trend is likely to persist unless we break down below the low range or the lows, or we pop up above the highs. Okay, so here we might see an example of where we started into a period of once we broke down below the lows, the subsequent rally didn't get us up to the previous peak, and we're starting to suspect, oh, we now have not only suspect, but have confirmed lower high, lower low, downward trend.

Now here we broke to the upside, we have a higher high, we have a higher low here, that started into an uptrend. In this case, the trend didn't persist for very long. And we've just sort of slid back into a sideways range. But all of this requires some discretion. It requires a trader to have the ability that when they don't have Cameron here drawing lines on the chart for them, let me take all of this off, right click, let's clear this whole drawing set. How comfortable are we in identifying what that trend really is? But for some traders, they might say, 'Gosh, can't we just automate this? Isn't there some mechanical approach to identifying trends?' And there is. Now, when I say it's mechanical, or it's automated, it doesn't mean that it's, it's, you know, it's not.

Therefore, inherently better; it's just a different approach. But, yeah, here's trend identification using a mechanical approach. This, we're going to, we're going to be using as an example today, possibly, at least in my experience, the most commonly used technical indicator used on charts. And it's for trend identification, which is interesting to me, if nothing else. Might it, could it have some implications regarding the priorities of traders generally, if they're using a trend identification? Most commonly, it could. But problem with saying, oh, this is definitely the most commonly used, and therefore, it's the most important is, I don't have the data to back that up. It's purely observational. But yes, for some traders, they use something called a moving average to help them identify trend. Okay.

Now, in this example, we're using what's called a 30 period, simple moving average. And it might help smooth out price fluctuations, enhancing one's ability to see sort of through the day-to-day noise and identify the trend. But really, what a simple moving average is, it looks like just a line that's automatically drawn on the chart. And it's generated by using a certain data set. In this case, assume that we're looking at a, we're looking at a daily chart. And if we're using a 30-period line, what that means is we're using 30 days in the case of a daily chart. And to construct this line, the indicator just looks at the closing prices for each day for the last 30 days, adds them all up, divides by 30. And that gives us the average closing price.

And then it plots that on the chart. And it just repeats that process every day, plotting the average, the average price for each 30-day period as time goes by. And then we can just connect those prices over time. And it generates a line that's going to be a little bit smoother than just looking at price. And for some traders, they consider this to be a clearer, potentially more valid view of trend. I say for some, others don't hold that opinion. Okay, but why did we choose 30 periods? Well, that might be used for some traders to identify 30 periods on a daily chart is 30 days, that's 30 trading days, that's about a month and a half worth of data.

If a trader thinks that, well, I don't care what's going on, what's been going on, what's been going on, what's been going on, what's been going on, what's been going on, what's been going on. I don't care what's going on over the last month and a half, because I tend to get out, get in, and get out very quickly. Maybe I need a faster indication of trend so I can see faster trend changes. Well, a faster-moving average is more responsive to price movement, but it might produce false indicators of trend changes. Yeah, something's jumping up and down. It might improve the speed of the indicator, but it might not improve the quality of the indicator. And finally, a slower moving average can offer potentially stronger trend signals, but it can be slower to reverse and show when a new trend has started.

It might follow significantly behind that trend. So there are pros and cons to using faster and slower. Let's go put these on a chart and bring it all together. Let's go to, let's go back to our CL chart. Okay. And we have the trader who's been, who's been administering their own sort of manual discretionary analysis of the, of the chart. But what if I take that off? I'm going to right click. Let's clear that whole drawing set. And let's say that our trader instead prefers to lean on an automated or a mechanical trend identifier. Let's go up to our edit studies. This is going to bring up a full list of all the technical indicators that might be added to a chart. And there are hundreds of them.

We can go down in alphabetical order, but the one that we're looking for is called a simple moving average. So I'm going to type in S1, S2, and S3. And I'm going to type in S1, S2, and S3. And I'm going to type in S1, S2, and S3. And I'm going to type in S1, S2, and S3. And I'm going to type in S1, S2, and S3. And I'm going to type in S1, S2, and S3. And I'm going into the S-I-M. That limits it just to those indicators with the S-I-M here. Simple moving average. Let's add that to our chart. And by default, actually, Thinkorswim is going to prepare a fairly short term trend identifier. It's going to use a fairly short term simple moving average. I'm going to extend that out.

Let's say that we stick with the, with the period that was in the, in the example. Let's click OK and click apply. And what we see now as we click apply, you're gonna see a line appear on our chart. Let's click okay again. So there is our 30 period moving average. So just to revisit how this is constructed, if you'll notice there's a number right up here in the upper right, it says 104 . 34, it's green. So, is our moving average. So that's telling us the current value of that moving average. And explicitly what that's telling us is that over the last 30 days, including the markets are still open right now. So including today's current price, the average closing value over the last 30 days has been $104.

34. So if you look at the last 30 days, some of those prices have been lower, some of those prices have been higher, but average is right about here. Now, if we were to look back in March or February, I think you would guess that average prices, if we're looking at a 30-day period leading up to, let's say the first part of February, they were certainly lower than they are today. So the average price, or the average at that time was around $80 and 67 cents. So those changing or those moving averages generate our line. So for some traders, they might look at this and say, well, as long as that line is moving higher, prices on average, at least over a 30-day period are still rising.

And a single day of selling isn't gonna discourage them from maybe looking for new bullish entries. Now, if there's a reversal of this trend line, if it starts to head down, that might cause them to hit the pause button. All right, for now, I think the trend's down; no longer interested in looking for new bullish trades, I might even start looking for new bearish trades. So that's an example of a simple moving average. There are definitely pros and cons to this. For some traders, they might say, 'I prefer to lean on my own experience, and this does not lean on experience; this is just, sort of black and white. It's either going up or it's coming down, right? But in either case, neither one of these approaches is guaranteed to perform.

But also, we need to talk about different timeframes because you might say, Cameron, why did you choose 30 days? Well, for some traders, that might be their preferred trend timeframe. Others might think this is way too slow. Think about somebody who's trying to catch short-term reversals in price and so they're looking at very short-term trends. This might be just way too slow. For others, let's say we have an investor who doesn't care about the day-to-day, the week-to-week, possibly even the month-to-month ebb and flow between buyers and sellers, they're really just looking for major reversals of trend. Even a 30-day moving average might be a little bit too fast for them. So, let's talk about timeframes. There are 10 to 10,000. Be three primary timeframe or trend timeframes.

Long term, which is longer than a year. Intermediate term, three months-ish to a year. And then short term, less than three months. There are going to be traders, and even the same individual may have preferences for different trades. Well, this trade is going to be short term, so I'm going to use a shorter term moving average. This trade is going to be more like an investment. It's going to be longer term. I'm going to use a longer term moving average. But in any case, it's important to analyze trends within the time frame that matches your investing or trading objective for the portfolio overall, but also for the individual trade. The most important rule among technical traders is to trade with the trend that matches that objective.

And those traders also try to incorporate the next larger trend. So I'll talk about that. What I mean by that, that final bullet point, is that once a trader has selected, let's say, a preferred trend time frame, let's say that they're looking at a very short term trend, maybe only 10 days. And it's giving bullish signals, but the next longer signal, the next longer trend, let's say it's a 30-day trend, it's starting to tilt down. That trader might say, 'Whoa, whoa, whoa, let's wait on this new bullish signal on this short-term because the longer term is not looking quite so good.' Here's what that might look like on a chart. Let's go to our charts. We have our 30-period moving average. Let's leave that on the chart, but let's add a faster line and a slower line.

So we're going to go back up to our Edit Studies icon. We're going to go back to Simple Moving Average, and I'm going to click Add twice, one, two, and that's going to allow us to put on two more custom trend line time frames. So this first one, how about we just let's notch this up just slightly from a 9-period moving average. Let's just take that to a 10. So it's a nice round number. Okay. 10 days, two weeks. And let's change our color to, let's make it red. Okay. It's faster, you know, hotter. Maybe we'll use a warmer color here. And then let's also put on a longer term moving average. I'm going to make this one pretty long. Let's go for 200 trading days. That's basically an entire year.

And let's give this a cooler color. Click okay. Let's click apply. And now what we're left with are three trend timeframes. And there are going to be traders that have preferences for each one of these. They have very different motivations. Okay. So first of all, we have that red trend line. Notice how quickly it changes direction. And the change in direction might signal to a trader that in the quite short term, a bullish run, in this case, it may hug pretty close to just those rally events. They might be looking for a turn in that short term. They just want to capture that rally or as much of it as they can, and then get out at or near equilibrium at the high side and not get back out or not get back in until equilibrium is reestablished at the low end of a cycle.

And that short term starts to rally again. Now, what they may still do though, is keep an eye on the green. They're not taking their signals from the green, but they're aware of it. As long as that green is still going up, they're looking for fresh entry signals on that shorter term timeframe. If that green starts to falter though, they might shift their outlook entirely, maybe looking for bearish signals and trading bearishly or just waiting for the green to start going back up again before they start looking for those shorter term bullish signals. Now, another trader might be taking their signals from the green line. Most recently, we started, we kind of hit a hesitation period right through here, started to rally right here.

They might say, 'Okay, time to get bullish again,' as long as we're also bullish down here on our longer-term moving average. This blue line is looking over the last 200 days, and it's saying, Cameron, the average closing value on Colgate Palm Olive was about 93 bucks. Cameron, the average closing value on Colgate Palm Olive was about 93 bucks. Over the last 200 days, about 100 days above, approximately 100 days below, but the average right about here. And that average is gonna change very gradually. It's not gonna be very sensitive at all. Even in the case of a strong pullback here, notice our shorter-term trend lines have started heading down. But for our longer-term trader, they might say, 'ah, it's just a pullback within a longer cycle, right?' But yeah, timeframes can be quite different.

So the trader just needs to select the timeframe that seems to suit their purposes most completely. But with that though, we've actually accomplished what I set out to do today. We wanted to talk about trend analysis. So we wanna talk through the tenets of trends. What are the underpinnings of why traders look for trends in the first place? We wanted to talk about two different methods, a manual approach and a mechanical approach for trend identification. And we wanted to look at those using some examples. For example, charts, that's a check, check, check that has a setup for next week. But before I go to sort of give the promotion for the next week, one thing I do want to recommend is that you take advantage of the other resources that are available to you outside of these webcasts.

So number one, make sure that you're following Barb and me on X. You can find Barb on X at barbarmstrongcs. You can find me on X at cameronmayscs. It doesn't, it doesn't cost anything to follow us on X, but this is where you can get observations about markets. It's where you can provide feedback. Like I just posed this question regarding the Russell. Hey guys, do you think the Russell's gonna finally close above $22. 65 before the end of the year? That would be the first time since 2021, or are those smaller capitalization companies likely to head back down again? It'll be interesting. Now, obviously nobody has perfect insight into that, but you can see people are starting to pose their responses there.

So yeah, X is a great place to get, to get more interaction with your favorite presenters, but also make sure that you've subscribed to our Trader Talks channel on YouTube. You can go down and click on the subscribe button right now. It doesn't cost anything, but our Trader Talks channel is the best place to find our previous webcast, webcasts organized into playlists. They're arranged by topic and by series. And of course, you can join our live streams here. Okay. All right. Yeah, thank you. For those of you who've already clicked the like button, by the way, I can see you have 114 people watching, 33 people who already clicked the like button. That's very much appreciated. So make sure if you like one of our webcasts that you like it.

You click the like, it gives the pat on the back to the presenter, but it also helps that presenter's webcast find a broader audience through that, through an enhancement of the YouTube algorithm. All right, but time for me to let you go, but here's what I would finally recommend that you do. First of all, get some practice. If this is your first time with a trend analysis, you can practice with manual analysis through the highs and the lows. You can apply moving averages to a chart, but just review the charts on thinkorswim on paper money to begin to get some practice with identifying trends, but also put it in your calendar to continue watching the webcasts that you're watching right now. So that's the end of our webcast series.

Coming up next in our getting started with technical analysis series is lesson four of eight, Support and Resistance: Identifying Price Floors and Price Ceilings. And can that be just as important as it sounds? Can be, yup. So we'd love to have you here for that discussion, but everybody, thanks for giving me your time today. Go enjoy the rest of your day. Enjoy the rest of our educational webcasts. I'll look for you in a future webcast. I'll also look for you next. Thanks Barb for helping out in chats, but everybody have a great day. Until I see you again, I want to wish you the very best of luck. Happy trading. Bye-bye.