Identifying Trends

The identification of trends is based on the following 3 aspects:

1. The movement of Balance Points (Where does the next BP develop?),

2. the movement of the Consolidated Balance (Balance Point resulting from any data combination, for example the daily consolidated balance represented by the horizontal red line in the program),

3. and the current position of the actual price (Is the actual price moving above or below those Balance Points?).

If the actual price is below (above) the Balance Point, the BP will become a level of resistance (support). As J-Chart measures the strength of Balance Points, a stronger BP will result in a stronger level of support (resistance), and a stronger level of support (resistance) results in a more reliable confirmation of an upward (downward) trend. The consolidated balance represents an additional reference of support or resistance.

Trend analysis

The figure above shows that markets are moving from one equilibrium to another as well as that the consolidated Balance Points of the bigger equilibriums are moving in the same direction like the BPs of the smaller triangles.

As already mentioned, we can identify short-, mid- and long-term equilibriums each with a different Balance Point (BP S1, BP S2, BP M, BP L). Generally, when the market is trending upwards (downwards), the Balance points (and markets' inner force) will be shifted higher (lower). We can see that the BP S2 of the second short-term equilibrium is higher than the first one (BP S1). Should the existing upward trend continue to exist, in the following also mid-term BP M and long-term BP L would be shifted higher.

The identification of a trend depends on your preferred trading cycle length and therefore on the time frame chosen. The identified upward trend could be 3 weeks while a bigger equilibrium demands price to go lower after reaching the upper border of the actual (smaller) equilibrium. An upward trend for a day trader may not qualify as such for a position trader. Therefore it is crucial to define your trading cycle in order to pursue useful trend analysis.