Trend changes

Patterns are based on one or more trend changes. Before I look at the various patterns that can occur, the question that needs to be answered is: can a trend continue indefinitely or will it always change? This question doesn’t have a simple answer, so I’ll consider it in relation to the three basic trends examined in chapter 3: uptrends, sidetrends and downtrends.

Uptrend change

In principle, there’s no reason why an uptrend can’t continue indefinitely. A sustainable uptrend is one that’s reasonable and justified. To decide whether or not an uptrend is justified you need to consider the basic principle underlying share prices: the true value of a business is the present worth of all its future earnings (profits), and the true worth of a share in the business is the present worth of all future earnings divided by the number of shares on issue; that’s to say, the present worth of all future earnings per share (EPS).