What is Trend?
A trend is the direction in which the market is moving in a given period. Market movements are never straight lines. They are usually a series of zigzags, which look like successive waves with clearly delineated peaks and rebound points. The direction of the drawing of successive peaks and bottoms determines the main pattern of the trend.
There are three types of trends:
- Trend upward – a series of consecutive higher highs (HH – Higher Highs) and higher lows ( HL – Higher Lows)
- Trend downward – a series of consecutive lower highs (LH – Lower Highs) and lower lows (LL – Lower Lows)
- Trend sideways (so-called horizontal) – the price moves in a range of pits and peaks located at the same or similar levels (in this case it says no trend or consolidation)
A beginner trader should follow three basic rules:
- Never fight a trend
- Always trade in line with the trend
- Trend is your friend
What do each trend mean?
The trend is measured in different time intervals, so for some investors it may differ, depending on which period they consider. It is best to match it to the frequency in which you make investment decisions.
What is an upward trend?
The first trend, is an upward trend. It is formed when local peaks and bottoms on the chart are located higher and higher. This is a very good time to occupy a decision, because the location of the lows higher and higher forms a support line, which is a support should prices start to fall.
What is a downward trend?
Another type of trend, is a downtrend, or depicting the opposite situation. Here the lows and peaks will get lower and lower, forming a resistance line that will be an obstacle should prices start to rise. This may be a good decision to sell and temporarily withdraw from investments.
What is a horizontal trend?
The last type of trend, is horizontal, which does not give clear signs at the beginning. Prices will stay inside a particular channel all the time, until there is a breakout, that is, a continuation or reversal of the trend.
What is a sideways trend?
A sideways trend is really just another name for a horizontal trend.
When do you know a trend is more reliable?
The more points on the chart connect the trend, the greater will be its reliability. The breakthrough of the trend can be a signal to buy or sell, but you also need to be careful whether it will be a false sign from the market.
