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7. Volume in Trends > Identifying Trends

Identifying Trends

Most people, when investing in a stock, believe that they are forming a relationship with a company. So they try to learn all that they can about the company and its prospects. But there is a more significant relationship that they are forming, and that is their relationship to all of the other people who own that stock. Those people can have a profound effect on the success of one’s investment, irrespective of what the company itself actually does. Trend analysis is a way of studying the personality of these investors by observing their past behavior.

Previously, you viewed individual price bars as expressions of the market’s emotions, convictions, and volitions. Between internal and external factors, any number of tens of thousands of fundamental and behavioral factors can affect the company, the industry, and the economy. How does anyone account for all the variables as they impact price? You track them through price and volume. Following the tracks of past behavior is trend analysis. Trends represent the dissemination and assimilation of market data by investors over time. As price imputes all the embedded knowledge and information available to the markets at a point in time, price trends are an expression of that embedded knowledge displayed over time. In this way, investing with the trend is merely participating with the consensus of market opinion. A contrarian might try to buck the trend, but it is said that the market can hold irrationality longer than the wisest of investors can hold losers.


  

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