hree Phases of Major point, the well-informed
Trends investors who accumulated when
the market was at its peak
A trend represents a general (trough) begin to sell (buy)
direction of the market. Dow before other investors begin to
Theory asserts that major trends follow suit.
have three distinct phases:
accumulation, public participation and distribution. size="-2">http://www.actionforex.
The accumulation phase represents com/images/stories/articles/tut_t
the first part of the trend in ech_4_1.gif
which those who are well-informed
buy or sell. In other words, if A Trend Is Assumed to Be in
the well-informed recognize that Effect Until It Gives Definite
the recent downtrend is soon Signals That It Has Reversed
coming to an end, they would buy,
and vice versa. This is a major theory that
essentially mirrors the physical
The public participation phase law stating that an object in
involves the masses following the motion tends to continue in
major trend. This occurs as motion until some external force
prices begin to accelerate causes it to change direction.
rapidly and there is news Relating that principle to price
supporting the trend. trends, a strong trend will tend
to continue in its current
The final distribution phase direction unless there is a price
occurs as the news highly favors reversal indication, as per
the current trend and speculative technical or even fundamental
volume and public participation analysis. The later articles will
increase even further. At this focus on learning to spot
reversals in the market and how rest of the trend. Or traders can
traders can place orders to take speculate the reverse of the
advantage of such reversals. trend and sell at relative highs.
If an up-trend establishes a
In Trending Markets relative high and the subsequent
rally fails to break through to a
The existence of a trend in any higher price, then the up-trend
market depends on a series of is in doubt. A series of
relative highs and lows. Two decreasing relative lows would be
consecutive relative highs, each necessary to determine that the
above the previous relative high, market trend had reversed to a
and two relative lows above the downtrend. More likely, the
previous low would be constitute market will be range bound for a
a tentative up-trend. A third period.
relative high would confirm the
trend. In Range Bound Markets
The chart below illustrates a Markets do not always move in
up-trend of EUR/USD: trends. They spend a lot of time
in ranges, fluctuating between
size="-2">http://www.actionforex. a range bound market is
com/images/stories/articles/tut_t considered to have a sideways
ech_5_1.gif trend, since it is neither moving
upwards to new highs or down to
The continuation of a trend new lows. If the short-term trend
depends on the successive rallies is that of a sideways market, it
reaching a greater price than the is sometimes called a
previous ones. Traders can buy at consolidation range. The price
relative lows and profit from the during a consolidation period is
simply building up support for a continued move in the original size="-2">http://www.actionforex.
direction. See the following com/images/stories/articles/tut_t
chart: ech_5_2.gif
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