What is a trend?
A trend is price moving mostly in one direction over a period of time. It is read from the sequence of highs and lows: rising, falling or sideways. Identifying the trend is the first step to reading everything else on the chart in the right context.
What is a trend?
Price never moves in a straight line. Rises are interrupted by pullbacks and declines by bounces. A trend describes which way these swings add up to.
In its simplest form, a trend is defined by swing highs and lows. If each new high and low is above the previous one, the trend is up; if below, it is down. If the highs and lows stay at roughly the same levels, the market is moving sideways.
Three states of the market
Uptrend
Highs and lows are each above the previous ones. Pullbacks do not reach the previous low.
Downtrend
Highs and lows are each below the previous ones. Bounces do not reach the previous high.
Sideways market
Price moves back and forth between two levels. Neither a new high nor a new low holds.
How to read it on a chart
- Choose a timeframe. A trend is always stated for a timeframe. Price falling on the 1H chart can be a pullback inside an uptrend on the daily chart.
- Mark the clear highs and lows. Take the points where price clearly changed direction, not every small wiggle. Not every candle's high is a swing high.
- Compare their sequence. Check whether the last few highs and lows are above, below or level with the previous ones.
- Note the last important low or high. In an uptrend the last important low, and in a downtrend the last important high, is the reference for when the structure counts as broken.
What it shows, what it does not prove
What it shows
- Which way price has moved so far on this timeframe
- Whether pullbacks and bounces have stayed inside the trend
- The reference point at which the structure would count as broken (the last important low or high)
What it does not prove
- That the trend will continue; it only describes behaviour so far
- How long the move will last or how far it will go
- That the same direction holds on other timeframes
The MarketLevelMap view
How it relates to zones
The trend changes how zones are read. In an uptrend, pullbacks often reach a support zone below. A reaction at that zone can be read as a hint that the trend is still intact.
A trend usually breaks by losing a zone, too. A close below the zone where the last important low sits can show that the rising structure no longer holds. That is why it is sounder to read a trend together with the zones its highs and lows sit in, rather than with a single line.
For general information only. Not investment advice.Last updated: