What is Uptrend in Forex Trading?
Now that we are familiar with the principle of trend, it’s time to get into more detail about the three main types of trend directions. Let’s talk about uptrend first.
An uptrend is a series of successively higher tops and higher bottoms. If the pattern holds, the uptrend remains intact. Traders usually draw a line, connecting two or more bottoms. This is called the ‘uptrend line’. A minimum of two bottoms are needed to make an uptrend line, but the more bottoms used, the more traders feel confident in the uptrend because it indicates a stronger direction.
The uptrend line acts as “support” while the tops act as “resistance”. The usual trajectory of price is that once it reaches the uptrend line, it bounces back up to move even higher. When supply becomes greater than demand, take note that the uptrend line may be breached. Next up: the downtrend! Stay tuned.
This is when the price starts making lower swing tops of lower swing bottoms. Traders will then question if a reversal has taken place and has turned into a downtrend.
It is important to remember than an uptrend shown on a price chart may zigzag over time. This indicates there are pullbacks and corrections in price, which results in changes to the steepness of the slope of the trend. However, the general trand is pointing upwards to higher prices.
An uptrend gives traders an opportunity to make a profit from rising asset prices. If the trader has identified higher swing highs and higher swing lowes, they can enter the uptrend in the hope that it continues. Failing to make more new higher tops and bottoms may mean a change in trend. This is a signal to sell the asset.
How do you identify an uptrend?
Drawing trendlines from one particular swing low and connecting it to another successive, higher swing low will reveal an uptrend. You can extend that line on the chart to show projected prices into the future.
How do you trade an uptrend?
After drawing trendlines which identify an uptrend, the projected line into the future can act as a support level. This could be used as an entry point to buy the asset or go long. Below this level may mean a reversal in trend where you can place a stop order.
Do you buy or sell in an uptrend?
Generally, traders will look to buy the dips during an uptrend. However, some traders may look for new highs to be made before buying. This is because trend followers like to enter in the middle of a trend when said trend is more established.
Next up: the downtrend! Stay tuned.
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