Canadian Securities Institute Item Jan 2006

Good educational value - this is a clip - Technical analysis is the best way to determine the trend. The most common tools are trend lines and moving averages.

Some time ago I adopted a modified version of the "True Range" to determine the trend because the same system can also be used to set trailing stop loss settings.The original True Range was described in 40 year old publication by J. Welles Wilder Jr. entitled New Concept in Technical Trading Systems, When the True Range bands are applied to Tembec Inc. we can easily see the trend 

When the True Range bands are applied to Sino Forest Inc. we can easily see the trend

The technical rule is simple; do not buy anything in a down trend no matter what anybody says - period.

The formula:

The true range is: the absolute value of the largest of the following – (I use weekly data) 

·         Distance between today’s high and today’s low

·         Distance between today’s high and yesterday's close

·         Distance between today’s low and yesterday’s close

Once you have the true range, you then calculate the upper and lower bands.

The upper band is the trading HIGH plus the TRUE RANGE. (10 period smoothing)

The lower band is the trading LOW minus the TRUE RANGE. (10 period smoothing)

Bill Carrigan