One of the simplest questions that new traders often need answering is, ‘what is a trend?’. This article will define what a trend is, explain the purpose of identifying it, and the different types of trends.
An uptrend, downtrend, and range
An uptrend is a series of higher peaks and higher troughs.
A downtrend is a series of lower peaks and lower troughs.
A range or sideways market is where prices move up and down, but on average, remain at the same level.
The different types of trends
The primary trend is the movement of price over months and years. The secondary trend is over weeks or months. The short-term trend is over days and the intraday trend is over hours and minutes.
The purpose of the trend
The basic premise of identifying a trend is so that traders can best take advantage of that trend in order to ride it for a profit. The trend is based on the underlying supply and demand that is in the market. When a market is bid, it is because of demand and you have the ‘bid’ price. When a market is sold it is because of supply and you have the ‘ask price’.
The basic role of technical analysis is to identify trends in order to know where to enter a market (buy or sell) and where to exit a market (cut losses or take profit).