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In a rising trend, the scrip price will witness an upward trend. The price movement graph will show higher tops and higher bottoms over a period. This can be explained by way of the following figure:
In case of a falling trend, the zigzag movement of the price curve shows a downward trend with intermittent upward counter moves. Here the scrip witnesses new bottoms and tops that are lower than the earlier bottoms and tops seen by the scrip. The figure above reveals this pattern. Price T2 is lower than price T1 and price B2 is below price B1.
In case of a flat trend, the scrip witnesses sideway movements and no clear new tops or bottoms are formed over time. The new tops and bottoms formed are almost similar to the previous levels.
Trading strategies should invariably involve a consideration of the trend in the price of the scrip. Thus, if the trend is rising, it will pay if you are able to enter the market at an early stage of the trend. If the trend is falling, you will be rewarded if you exit the market at the peak or near the peak. In case of a flat trend, it is better to move away from the market, as the scrip is still searching for a direction and you may not reap much benefit trading in the scrip during a flat trend. Thus, it is better to study the trend seen by the scrip and act accordingly while making or exiting an investment.
As the saying goes "what goes up, must come down". So is the case of price levels of scrips - price movement in a scrip is never unidirectional. Thus, the price of a scrip may exhibit an upward trend but after a point, it may witness range-bound trading or even a fall in its price. So is the case with a scrip showing a falling trend. It may recover lost ground, make a smart recovery and handsome gains as time goes by. Thus, the trends in price movements of a scrip are susceptible to changes in direction. These changes in direction of movements of the prices of a scrip are termed as trend reversals.
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