What is Trend?
You may have already heard popular phrases like “The trend is your friend” and “follow the trend”. But, what is Trend, exactly? In its simplest definition, Trend means the direction of the market. In more technical terms, Trend is the direction of successive tops and bottoms. There are three main types of trends: uptrend, downtrend, and sideways. During an uptrend, there are higher tops and higher bottoms. On closer inspection, one can notice that each top is higher than the previous top and also each bottom is higher than the previous bottom. An uptrend is likely to continue in the same direction.
In a downtrend, there are lower tops and lower bottoms. On closer inspection, one can notice that each top is lower than the previous top and each bottom is lower than the previous bottom. Just like uptrends, the downtrend is likely to continue in the same direction.
When the market is not trending, it doesn’t move upwards or downwards. Instead it moves sideways. On closer inspection, one will notice that in a sideways movement there are approximately equal tops and equal bottoms. Another way of defining this sideways movement is by calling it range. Unlike uptrend and downtrend, a range is more likely to break out either above or below the sideways pattern.
Now you know why trend is your friend! Until next time, traders!
