In the price chart of a stock, commodity or FX, can an uptrend and a downtrend be defined?

Can these definitions help someone to thus determine the start and end of a trend without any ambiguity or any bias from the user?

In other words, can the definitions, once explained and taught to a group of people, who then look at a chart, be able to all provide the same start and end to each trend on the chart.

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    It's what I think is an age-old question around technical analysis (which, as I say, I'm not really into, don't know enough to have much of an "authoritative" opinion, so I'm trying to be as neutral as possible:-))... you can analyse past prices to death; identify markers for "trends" (e.g. price has been above the 50-day rolling-average for 3 days) and generally try to "fit" past data to mathematical models... however, whether doing that gives you any better ability to anticipate what the price will do next is, I believe, open to (sometimes heated) dispute. – TripeHound Jun 13 '18 at 9:52
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    <slightlyTongueInCheek>To me, the problem seems to be that no one's told the stocks/shares that they're meant to be following these trends :-)</slightlyTongueInCheek> – TripeHound Jun 13 '18 at 9:54
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    I think we'll have to agree to differ at this point... I don't believe you can anticipate future prices as reliably as you seem to think possible (if for no other reason that if it were possible, even when including "risk management", everyone would be making millions every day). I also don't understand your exclusion of things like moving averages since they are determined purely on "price action" (albeit actions in the past). Without some historic input, all you have left is instantaneous price changes (and even those are based on the previous price). – TripeHound Jun 13 '18 at 10:16
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    Technical analysis is nothing else than astrology. If you want to believe into it, you'll find reasons to believe it. – Aganju Jun 13 '18 at 10:46
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    @Aganju - I'm not going to defend Technical Analysis as valid but someone has to take a stand when you defame astrology (g). Believe it or not, Arch Crawford, who uses astrology in his newsletter "Crawford Perspectives" was ranked #1 Stock Market Timer by the Hulbert Financial Digest for a 5 year period ending 1997, for a 2 year period ending in 2003 & for a 2 year period ending in 2009. TIMER DIGEST ranked it as #1 Bond timer in 1994 and #1 GOLD timer in 2006. And no, I have never read his newsletter. – Bob Baerker Jun 13 '18 at 13:02

The definition of a trend is arbitrary and as a result, multiple definitions abound. There is no such thing as "defining the start and end of a trend without any ambiguity" because the sensitivity of the analysis tool or indicator may or may not pick up the noise (for example, the length of the moving average).

Conventional technical analysis defines that an uptrend consists of higher highs with higher lows as buyers keep buying the dips earlier and earlier. A downtrend is the opposite. Within a trend there may be noise or small periods of intermittent price oscillation. Larger ranges of oscillation may or may not be definitive of whether a trend remains intact.

There are a variety of tools used to identify trend. The most common are moving averages and trend lines. Renko and Point & Figure charts are used to remove noise from the data.

Numerous mathematical indicators also exist. Some examples are the Accumulation Distribution Indicator, Average Directional Index (ADX) and Directional Movement Indicator with possibly the MACD (Moving Average Convergence Divergence indicator) and Bollinger Bands being the most commonly used ones.

Market behavior is either trending, mean-reverting, or random (noise). A moving average works well when the market is trending, assuming that it's periodicity isn't too long or too short. If you lengthen the MA to reduce noise, the lag is increased and the trend is extended. If you shorten it to reduce lag, whipsaws may occur, making you question whether the trend has ended.

All indicators have major weaknesses. They are cannot function in both trending and ranging markets. Trending indicators work in trending markets and oscillators work well in oscillating markets. Since there is no way to know what type of market tomorrow will bring, there's no way to know which type of indicator will be the correct one to follow. But I digress.

Speaking of tomorrow, no indicator predicts the future. They are merely an analysis of historical data and a trend following indicator may identify the trend or lack thereof up until today. Any trade decision taken today that is based on past performance is made with the "hope" that the trend will continue. Whether it will is completely unknown. Stocks have no memory of yesterday and counter direction news will negate all mathematical dissection. The only thing that never lies is price action.

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  • Your first sentence of your second paragraph should read - higher highs with higher lows. And apart from that (which you couldn't get right) and your very last sentence, everything else is waffle. – Victor Jun 13 '18 at 12:40
  • You mentioned a whole lot of indicators that could be used to determine where the trend is, however the problem in using indicators is that they can be adjusted to curve fit the results you want by changing their parameters. As you said in your last sentence - the only useful information is price action, so a definition using only price action will provide an unambiguous and unbiased definition of the start and end of any trend. – Victor Jun 14 '18 at 8:54
  • Thank you for affirming what I said in the last sentence of my answer. – Bob Baerker Jun 14 '18 at 11:23
  • Unfortunately the rest of your answer does not contribute anything to the answer, is useless, and does not answer the question in any way. In fact your last sentence debunks the rest of your attempt at an answer. – Victor Jun 15 '18 at 1:20

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