By watching the general trends of the markets, a trader may be able to match purchases and sales of particular stocks , maximizing his or her potential for profits. At the same time, it is important to look at historical data in a larger context of conditions for the underlying company to understand if there are factors that may affect a stock 's value irrespective of general market conditions or past performance. For example, a trader should look inside the financial conditions of the company, understand the market and technologies, and anticipate competitive pressures on the company within its sector. All of these tolls, as well as trend analysis, benefit a trader.
The above example shows a bullish trend line along with an RSI reading that suggests a strong trend. As the trend began to lose strength, with the falling RSI reading, traders may have started to exit the stock. The breakdown from the bullish uptrend represented a potential change in the longer-term direction of the trend. Trend traders that were long in the security may have sold their shares and waited for a better entry point, while contrarian traders may have looked to initiate a long position after the stock had fallen and the RSI had bottomed out.