What is a Trend?

Markets movement is usually characterized by a series of waves or fairly obvious peaks and troughs. It is the direction of these peaks and troughs that constitute the market trend.

There are three trends to the market: Up, Down and Sideways.

Uptrend: defined as a series of successively higher peaks and troughs or waves. (Refer APPL in illustration)

Downtrend: is the opposite of an uptrend, with successively lower peaks and troughs or waves. (Refer GE in illustration)

Sideways: Horizontal peaks and troughs would identify a sideways trend.

There are three classifications to a trend:

Major Trend, Intermediate trend and near term trend.

Major Trend: being in effect for 1 year or more

Intermediate Trend: In effect for 3 weeks to 3 months

Near term Trend: is defined as anything less than 2 or 3 weeks

The reason for this classification is because it is most likely that more than 1 trend is active in the price movement. Each trend becomes a part of the larger trend. For example, an instrument could be in a long term uptrend and it could pause for a couple of months (usually referred to as a correction) before continuing its upward path.

A trader or investor needs to consider their tome horizon and make the appropriate decision.

Illustration 2: The major trend for the Euro Stoxx 50 for 5 years (2014 to 2019) has been sideways. However, there were two intermediate downtrends (in 2015 and 2018) and two intermediate uptrends (in 2016 and 2019).