Trend

A trend refers to the general direction in which prices move over time and is categorized into three main types: an uptrend, characterized by a consecutive series of higher highs and higher lows; a downtrend, characterized by a consecutive series of lower highs and lower lows; and a sideways or range-bound trend, where price fluctuates between two levels without a clear directional bias.

A famous maxim in technical analysis states that "the trend is your friend," meaning that trading in alignment with the broader trend increases the probability of success compared to attempting to trade against it. A trend can be identified by drawing trendlines, using moving averages, or simply observing the sequence of highs and lows directly on the chart.

Trends vary across different timeframes; a market may be in an uptrend on the daily timeframe while undergoing a short-term downward correction on the one-hour chart. Therefore, it is essential to establish the reference timeframe before assessing the trend.

A common mistake is confusing a temporary correction with a full trend reversal, as well as attempting to call tops or bottoms prematurely against the dominant trend. The safer approach is generally to confirm a trend change through the break of a trendline or a key support/resistance level, backed by indicator confirmation, before taking a position contrary to the prevailing trend.