A technical analyst checks if a trend is real by looking at how prices move over time, like watching a toy car go up and down a ramp.
Imagine you're on a playground slide, when you go down, that's a downtrend; when you climb the ladder to go higher, that's an uptrend. Now imagine your friend is doing this too, but from a different slide. A technical analyst wants to know if both of you are going up or down together.
How They Check for Uptrends
A technical analyst looks at highs and lows. In an uptrend, each high is higher than the one before, like stacking blocks on top of each other, every new block goes a little higher. And each low is also higher than the last one, like stepping up a small staircase.
How They Check for Downtrends
In a downtrend, it's the opposite. Each high gets lower, like pushing blocks down a hill. Each low gets even lower, like going down more steps on the slide.
If both highs and lows keep moving in the same direction, up or down, that's how technical analysts know a trend is real, just like you'd know your friend was having fun on their slide if they kept going higher and higher!
Examples
- A trader uses two lines on a chart to tell if the market is heading up.
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