[Summary]
A trend line is a method of checking the flow of prices using lines.
Merely remembering the meaning of trend lines is not enough to make actual buying and selling decisions. You need to look at the context in which the words are used.
In actual investing, the first step is to visualize the upward and downward momentum. However, it cannot be overlooked that the way lines are drawn tends to be subjective.
In this article, we will organize trend lines not as "knowledge" but as a step to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, divide by trend line
When looking at trend lines, first determine what you want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. Trend lines are not the only material used to make decisions. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Putting the meaning of trend lines into practice
If you want to look at trend lines in terms of their meaning, first make a narrow premise. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
If you check the following points, things will be much more organized.
| Axis to check | What to see with trend lines |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
It's not only when you lack knowledge that you stumble with trend lines. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Do not use the trend line definition as a buy or sell signal
- Separate the meaning, situations in which it is used, and situations in which it is not used.
- Check only one difference between similar words
- If you cannot explain it, reduce your position.
The important thing here is not to rely on the trend line alone as the correct answer. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using the trend line as a basis for actual judgment, check at least these five things.
- Can you explain in one sentence the purpose of looking at trend lines?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of checking trend lines is not to act faster, but to reduce unnecessary errors in judgment.
Summary
Trend lines are used to organize investment decisions. Even if you read it as a meaning, your judgment will be inaccurate if you treat it as a standalone buy/sell signal.
The points to keep in mind are as follows.
- Decide first the purpose of looking at the trend line
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. It is realistic to use trend lines as a tool to pause before buying or selling, rather than as a word that forces you to make a hasty decision.