Why do higher highs and higher lows define an uptrend? And why do lower lows and lower highs define a downtrend?
The theory behind this definition is actually quite complicated. From the many mathematical models we have used in our own computer simulation process, we have concluded that this definition of the trend is one of the best approaches we have discovered so far – even though it is not actually proved as yet and it may not ever be proved. For the past 20 years applying trend concept to real-world trading and using it as the foundation for building the AbleSys trading software, we have found that it works! It yields results that are easy, simple, and visual. It can be applied to any market and charts in any time frame. It works whether applied to stocks, commodities, futures, Forex, bonds, mutual funds, real estate, economic indices or any freely traded markets around the world. It works whether it is applied to 1-minute, 5-minute, 15-minute, 30-minute, daily, or weekly charts.
To those who are not theoretical mathematicians it may seem strange that a “truth” we accept intuitively may require proof and in fact may not have ever been proved. But this is the case with some of the seemingly simplest concepts we have known and used since childhood. For example, “1 + 1 = 2” is a very well-known fact and the most important foundation for mathematics especially for “Number Theory”. We know the fact however it has not yet been proved by anyone in the world! Why is it that 1 + 1 = 2?
One attempt at a solution was offered by the Prussian mathematician, Christian Goldbach (1690-1768), best known for the conjecture that every even integer > 2 is a sum of two primes, first stated in 1742. We know that 1 + 1 = 2, and 2 = 1 + 1 both fit his conjecture. However as simple as it may seem, Goldbach’s conjecture remains one of the oldest unsolved problems in number theory and in all of mathematics. It has been more than 260 years today and no one in the world has proved it yet. Some mathematicians have spent their whole lives trying but have failed. As Albert Einstein said, “God does not care about our mathematical difficulties – He integrates empirically.”
However our inability to prove the truth that 1 + 1 = 2 has not prevented us from using it in all the practical applications that have created the modern world we live in today. And the success of those applications “proves” the utility of the concept. In the same way our inability to “prove” the meaning of a trend in terms of technical analysis does not prevent us from using it in practical applications, our back-testing results, successful virtual paper trades, and the experience of tens of thousands traders showing positive results, supports our decision to simply accept the concept of the trend and put it to good use.
Trend refers to the general direction in which the market tends to move. If we know the general direction that the market is heading we can achieve a profit by simply riding on the natural course of the market’s flow. The market itself determines the most highly probable direction in which it is likely to continue, coupled with support and resistance levels. The trend and support and resistance levels are defined by the market’s own prices. Here is an example of a market trend with Amazon.com
We cannot predict the trend – but we may follow the trend with AbleSys trading signals to our benefit. This is a major difference between the trading method that underlies AbleTrend and other approaches to trading. The primary purpose of AbleTrend is to define a trend objectively so traders can follow the trend for profits in trading.
How much simpler – and more successful trading becomes when we get out of the predicting business, and get into the business of simply following trends as they unfold before us.