Trends

An important part of investing is the ability to identify and exploit market trends, which I understand as being persistent movements of an individual security, a sector or an index in the same direction over a considerable period of time.  Significant recent trends have ranged from the twenty-year+ disinflationary trend that started in the early Eighties, to the rise of mobile communications networks and devices in the early Nineties, to the plain-vanilla inventory cycle that usually consists, in the US at least, of about 30 months of rising markets followed by 18 months or so of falling ones.

Counter-trend movements are normal

Trends are never one-directional.  Instead, they are punctuated by periodic counter-trend movements.  Seen over periods of, say, six months or a year, the interplay of trend and counter-trend movements are what gives markets their characteristic pattern sawtooth pattern of advance and decline.

Two types

As I see it, counter-trend movements are of two types, which I’ll call relative and absolute.

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