Glossary
Trend
The general direction a price is moving over time, up, down or sideways, defined by its sequence of highs and lows.
On this page
A trend is the prevailing direction of a price over a chosen period. In an uptrend the price makes higher highs and higher lows; in a downtrend, lower highs and lower lows; in a sideways trend, or range, it oscillates between roughly stable levels. Identifying the trend is the first step in most technical analysis, because many strategies work only in one kind of market and fail in another.
How traders define it
There is no single test. The common ones:
- Swing structure. Compare successive peaks and troughs. One higher low after a higher high is a start; several in a row make a trend.
- Moving averages. Price above a rising 50- or 200-day average reads as an uptrend.
- Trendlines. A line connecting rising lows marks the path of an uptrend.
- Strength readings. The ADX measures how strong a trend is, regardless of direction.
Things to remember
Trends exist on every timeframe at once. A stock can be in a long-term uptrend on a weekly chart, a pullback on the daily chart and a short downtrend on an hourly chart. State which one you mean.
Trends also end, and they rarely announce it. Trend-following systems accept many small losses in choppy markets in exchange for large gains in sustained moves. The saying "the trend is your friend" is a description of that trade-off, not a promise: buying into a mature trend is buying after much of the move has happened.