Traders watch the markets to determine trends. A trend in simple terms is a single direction the market is headed for a defined period of time. Trends are broken down into three categories: major, intermediate and short-term depending on the length of time the direction holds steady. The three directions in which a trend can move are up, down, and sideways.
When a trader refers to an uptrend, it means that if the movement is charted, the pattern will show extreme highs and higher lows. A downtrend is one in which charted data forms a pattern that shows lower lows and lower highs.
If data is trend-less, that means that price movements are so erratic and steep that they cannot sustain themselves and therefore must reverse. Although the movements can move many points in a short period of time, they seldom result in a significant change over time.
A choppy pattern is defined as an erratic pattern of higher highs and lower lows. A sideways pattern is the reverse. Here the pattern is narrow and displays lower highs and higher lows. And finally, a flat trend is one in which there is little change between the highs and the lows.
The definition of a trend is broader than just direction and duration. A more useful definition would be one in which it is defined as a predictable price movement at levels of support/resistance that change over time. Support levels are specific price levels a currency cannot fall below. Resistance a specific price level a currency cannot rise above.
This means that in an uptrend prices rebound when they near support levels and establish new highs. In a downtrend, price increases will reverse as they near resistance levels and establish new lows. Using support and resistance helps to determine if a trend is real.
Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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