Market Dynamics believes that the two most important elements of a technical appraisal of any market are:

• Identification of the Trends
• Location of Support and Resistance areas

Identification of Trends
By definition, an uptrend is a sequence of higher highs and lows, while a downtrend is a sequence of lower highs and lows. If no clear pattern is present for any given time frame, the trend is deemed neutral. Typically, on examining stock price data it is possible to find up to four different types of trend present at any one time.

  Long-term trend - a progression running in excess of 12 months
  Medium term trend - a progression running for 3 - 12 months
  Short-term trend - a progression running up to 3 months
  Super or Primary Trend - these are very long term trends usually running well in excess of 4 years often 10 years +

Similarly, the chart of a stock's performance relative to a market benchmark such as the FTSE 100 Index yields additional trend information.

In general, the most attractive time to be long of a stock is when each of the above trends are positive and vice versa for short positions. Most of Market Dynamic's aggressive bullish calls will occur when the medium or longer-term trends are positive, vice versa for bearish calls.

Determining Trends:
As noted above an uptrend is a sequence of higher highs and lows, while a downtrend is a sequence of lower highs and lows.

In order to help determine whether a trend will continue or reverse we look for classic reversal or continuation patterns. Although many refined distinctions exist between different types of reversal pattern (head and shoulders, double and triple tops, diamond tops etc), we tend to treat them as one and the same. Typically the most reliable kind of reversal pattern starts with a consolidation phase made up of two or more swings that occur within fixed support and resistance boundaries.

If after trending higher a stock makes this kind of consolidation pattern and then breaks the lower boundary, it is deemed to have topped out. If it breaks the upper boundary, it is deemed a continuation pattern. In the latter case, the trend is likely to continue.

Determining Support and Resistance:
One reliable method for determining support and resistance areas is to look at old highs and lows on the price chart. Most technical analysts commonly use this method. Typically the larger and more long standing the old high or low in question the greater the significance / magnitude of the level. Therefore, an all time high that has been in place for a number of years would be treated as a major resistance area.

In addition, Market Dynamics uses techniques pioneered by the late WD Gann, who was perhaps the most successful technical trader of all time. Gann maintained that markets are inherently cyclical in their behaviour and that most if not all trends are derived from the cyclical rises and falls in investor sentiment. Long-term cycles are made up of smaller sub-cycles or harmonics, which determine the medium and nearer term direction.

Armed with this knowledge it is not surprising to discover that when a market retraces a bull or bear swing it is very common for the magnitude of the retracement to be in precise harmonic proportion to the magnitude of the preceding swing in question.

Thus after a bull run of 100 points, common reversal areas for the ensuing correction would be 3/4, 2/3, 1/2, 1/3, 1/4 etc of the preceding bull run i.e. 75, 66.66, 50, 33.33, 25.

Thus in order to help determine the location of support and resistance areas, Market Dynamics analysts often divide a bull or bear swing up into harmonic price intervals and can then view these as possible reversal points.

Similar observations are true of the duration of the swings. By calculating the gradient between a major low or high and subsequent turning points, it becomes possible to calculate a set of harmonically proportionate gradients which function as time sensitive support and resistance lines.

Momentum:
In addition to the above methods, Market Dynamics uses momentum indicators to help with market timing. In general, we use Welles-Wilder Relative Strength Indicators. These indicators track a market's rate of advance / decline within specified rolling periods e.g. 10 days, 20 days etc. They are useful in determining whether a market is overbought / oversold within in a given time frame and can be very helpful in deciding whether or not to go with a trend.