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The trend is very important for technical analysis. Most of the methods of technical analysis relies on the existence of a trend. The idea is to identify trend in its early stages and to trade in direction of trend. Therefore traders usually say: "trade in direction of the trend" or "trend is your friend".

Trend can be defined as the direction in which prices are moving. However, this movement is not straight, it is rather a zig-zag movement. So the trend consists of a series of peaks and troughs that move up, down or horizontally. Uptrend can be defined as a series of successive peaks and troughs that move upward, downward trend is the opposite of the uptrend (moving down). The horizontal trend is horizontal movement of peaks and troughs, or swing around straight lines.

Horizontal trend
Horizontal trend

It is not recommended to trade while horizontal trend is in force because you cannot predict future price movements.

Using a time as a parameter, trend can be classified as:

  • Long-term trend (lasts more then one year)
  • Intermediate trend (lasts more then one month)
  • Short-term trend (lasts few days or weeks)

Each trend is part of a some larger trend. So the intermediate trend is a part of long-term trend, and it is also composed of short-term trends.

Trend composed of smaller trends
Trend composed of smaller trends

The figure shows that the trend 1-2-3-4 has correction 2-3 (intermediate trend) and correction has shorter trend: A-B-3.

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Trend line >