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A trend is the general direction of a stock's price movement over time, classified as uptrend, downtrend, or sideways, and used by investors to identify potential trading opportunities.
A trend is the general direction of a stock's price movement over time, representing the path of least resistance for prices. Identifying and trading with trends is one of the most fundamental concepts in technical analysis, based on the observation that prices tend to move in persistent directions rather than randomly.
Types of trends:
Uptrend: Characterized by higher highs and higher lows, indicating bullish momentum. Each price advance exceeds the previous peak, and each pullback finds support above the prior low.
Downtrend: Characterized by lower highs and lower lows, indicating bearish momentum. Each rally fails below the previous peak, and each decline breaks below the prior low.
Sideways/Range-bound: Price moving within a horizontal channel without clear directional bias. Highs and lows remain relatively consistent, creating trading ranges.
Trend timeframes:
- Primary trend: Long-term direction lasting months to years
- Secondary trend: Intermediate corrections lasting weeks to months
- Minor trend: Short-term fluctuations lasting days to weeks
Trend identification tools:
- Moving averages: Price above 50-day and 200-day MAs suggests uptrend; below suggests downtrend
- Trendlines: Connecting successive swing lows (uptrend) or swing highs (downtrend)
- Higher timeframe analysis: Weekly and monthly trends typically override daily trends
- ADX indicator: Measures trend strength regardless of direction
The golden cross and death cross:
- Golden cross: 50-day MA crosses above 200-day MA—bullish signal
- Death cross: 50-day MA crosses below 200-day MA—bearish signal
Trading with trends:
- Trend following: Buy in uptrends, sell or short in downtrends
- Pullback entries: Wait for price to retrace toward support before entering with the trend
- Breakout trading: Enter when price breaks through resistance (uptrend) or support (downtrend)
- Avoid counter-trend trades: Fighting the trend typically has lower success rates
Trend reversal signals:
- Trendline breaks: Price closes beyond established trendline
- Moving average crossovers: Shorter MA crosses longer MA in opposite direction
- Failed highs/lows: Inability to make new highs in uptrend or new lows in downtrend
- Volume divergence: Declining volume during trend continuation
The phrase "the trend is your friend" reflects that trading with the prevailing trend typically has higher success rates than trying to predict reversals. Trend followers wait for confirmation before taking positions rather than trying to pick exact tops and bottoms.
Where it fits
SMA 50SMA 50 tracks the average price over the last 50 periods. It's a common medium-term trend indicator.→Trend
SMA 200SMA 200 is a long-term moving average. Prices above it often signal a long-term uptrend; below it, a downtrend.→Trend
50-Day MAThe 50-day moving average is the average price of the stock over the last 50 trading days. It smooths out short-term noise and helps show the medium-term trend.→Trend
200-Day MAThe 200-day moving average is the average price of the stock over roughly the last 10 months. Investors use it to judge the long-term trend and overall direction of the stock.→Trend