A trend is the overall direction of a market or an asset. This is used by those engaging in speculation looking to profit from price appreciation.
Those using technical analysis apply trendlines to indicate high and low swings.
Many will trade the trend, following the edict "the trend if your friend". Contrarian investors will go against the trend, looking for a reversal.
An uptrend reveals strength in the price while a downtrend is weakness. Sideways movements show a market (or asset) that is indecisive.
Trend Lengths
There are different lengths in trends which market participants apply.
Using water analogy:
- Primary – Long-term (1 year or longer): the tide
- Secondary – Intermediate (1 to 3 months): the waves
- Minor – Short-term (less than 1 month): the ripples
Trends of different lengths can be counter each other. Traders and investors need to make sure they are in alignment.
Long-term investors, as an example, are not going to be concerned about ripples.