trend
The trend persists
The rule
A trend usually keeps going until something clear stops it. Walk with it, not against it. But a trend only looks obvious after it has ended.
Where it flips
In a choppy, sideways market there is no trend to keep going. Trend-following then whips you back and forth on every fake move. The fix is to first ask: is price trending or just moving sideways? Lean on the trend only when higher highs and lows, or the reverse, are truly there.
Dow's second idea is simple. A trend in motion tends to stay in motion until a clear signal says stop. Higher highs and higher lows keep coming more often than not. Betting 'it must turn soon' is costly. The honest part is this: the signal that confirms a trend always comes late. And the turn you felt sure about is only clear later, after the pattern has already broken.
A worked example
A large-cap makes higher highs and higher lows for months. A reader keeps short-selling because it 'looks too high', and loses again and again. The plain read, that the pattern is still going up, kept working until a lower low finally broke it. The break, not the feeling, was the real signal. [illustrative]
How to spot it
- ·clear higher highs and higher lows, or lower highs and lower lows
- ·a bet placed 'against' a trend just because it has run a while
- ·a market drifting sideways where no trend exists to follow
Charles Dow · Dow Theory