of the basics
of tech analysis is the notion of trend. Trend is the main direction of
price movements over a certain timeframe. The price never goes strictly up or
down, instead, it goes wave-like, yet the chart can give a general picture of
where the price aims.
Trend
direction
The
market distinguishes an uptrend and a downtrend. In graphic analysis, trends
are drawn by trendlines called the support line for an uptrend and the
resistance line for the downtrend.
An
uptrend is alteration of ups and downs, peaks and bottoms, each next one being
higher than the previous one. Here is an example of an uptrend on a screenshot.
As
seen in the picture, peaks and bottoms alter but successively growing bottoms
confirm an uptrend. A line drawn through the extremes of the bottoms is called
a support line.
A
downtrend is alteration of ups and downs, peaks and bottoms, each next one
being lower than the previous one. Here is an example of a downtrend on a
screenshot.
As
seen in the picture, peaks and bottoms alter but successively decreasing peaks
confirm a downtrend. A line drawn through the peaks is a resistance line. The
steeper the trendline inclines, the brighter and stronger is the trend.
A
flat means price movements in a strict range, without a clear trend. For
example, the price fluctuates in a 10-points range for a certain time.
Trend types
Trends
can also be characterized time-wise. There are long-term, medium-term, and
short-term trends.
A
long-term trend can happen on a yearly, monthly, or weekly timeframe. A
medium-term trend – on a D1 or H4, and a short-term one – on H1 and smaller. Hence,
talking about a trend, it is important to specify the timeframe. As long as the
trend consists of impulses and corrections, it will look differently depending
on the timeframe.
For
example, if we talk about a long-term uptrend that, indeed, appears on MN, we
should remember that at a certain point the price can be in a correction. So,
on a D1, the trend can be descending.
And
if that downtrend on the D1 is also correcting, on H1, the trend can be
ascending.
Apart
from uptrends and downtrends, the market can give the price no distinct
direction. This is a flat. In such times, the price moves in a channel or range
from its upper border to the lower and back.
Bottom line
Always
remember that trading the trend is normally more profitable. Hence, trend
trading systems are extremely popular among equally beginners and experts. The
main problem can be waiting for a trend to start because most of the time the market remains in a flat. However, patience will pay
the trader a hundred times.
By
RoboForex
Analytical Department
