Uptrends and Downtrends

Be running up that road
Be running up that hill
Be running up that building
--Kate Bush

A useful skill for investors is technical analysis. In the investing context, technical analysis is the study of security prices over time. Usually the price:time relationship is pictured in a graph, and the objective is to look for patterns that either help describe current situations or that might help predict future price behavior.

For instance, a common pattern in technical analysis is a price trend. An uptrend occurs when a diagonal line can be drawn underneath a series of prices so that a pattern of 'higher lows' is evident in the series. The current chart of Cisco Systems (CSCO) indicates a strong uptrend over the past couple of months:

A downtrend occurs when a diagonal line can be drawn above a series of prices so that a pattern of 'lower highs' is evident in the series. Note the downtrend evident in Apple (AAPL) prices last fall:

Note also what is sometimes called a 'trend reversal' on the AAPL chart. In early January, the downtrend in AAPL stock prices was 'broken' when prices decisively moved through the uptrend line. Since then, the stock has been heading higher in a discernible uptrend pattern.

Knowing whether individual securities, or markets overall, are trending up or down leads to more informed investment decisions.

position in CSCO