Ask Colin

In your July 2003 Shares magazine article you mention buying into an uptrend by studying the downswings for a signal they have ended. What does this mean?

In your July 2003 Shares magazine article you mention buying into an uptrend by studying the downswings for a signal they have ended. What does this mean?

An uptrend will consist of a series of upswings that tend each time to take the price of a stock higher, interrupted by downswings that tend to finish at a higher price than the previous downswings. In this way price makes progress higher on each up and down swing in the trend.

In some ways, the ideal time to buy into an uptrend is when a downswing in that trend is finished. This is not easy and cannot be done with precision on a consistent basis. However, there are a few ways to try to pick the end of a downswing:

1. Run a trendline through the highs of the bars in the downswing and buy when the price cuts up through the trendline.

2. Find a moving average that seems to hug the highs of the bars in the downswing and buy when the price cuts up through the moving average line.

3. Analyse the bars in the downswing. Buy when the short term trend changes from down to up. This is described in the Stockwatch and Technical Analysis articles on my subscription web site. I will also be dealing with it in the upcoming Shares Charting Issue No 3, due out late in 2003.

4. Study the way the bars unfold in the downswing looking for a short term reversal signal. Buy when it appears. In my article Swing with the Trends in the January 2003 issue of Shares magazine, I described the Pivot Point reversal. I listed the others in that article. These signals are all described in the Stockwatch and Technical Analysis articles on my subscription web site. I am also going to be dealing with them in the upcoming Shares Charting Issue No 3, due out late in 2003.

Past Shares magazine articles are available on my subscription web site.

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