Trend Analysis Theory – Peaks and Troughs
Еhe concept of peak and trough analysis, a technique first brought to our attention as a tenet of Dow theory. While the theory itself has lost much of its luster in recent years, the peak and trough part of it has not. It is arguably the most important building block of technical analysis. When you look at almost any chart, it’s fairly evident that prices do not go up and down in straight lines, but move in zigzag patterns instead. During a bull trend, a rally is inter- rupted by a correction in which part of the advance is retraced. This is then followed by another rally, after which a subsequent correction follows, and so on.
These are the peaks and troughs. As long as a trend experiences a series of rising peaks and rising troughs, it is considered to be intact. However, when the series of rising peaks and troughs is replaced by a series of declining peaks and troughs, the prevailing trend has reversed. 6 pages