The general direction of price movement over time. Prices trend upward (higher highs and higher lows), downward (lower highs and lower lows), or sideways.
What Is a Trend?
A trend is the overall direction in which a market is moving. In an Uptrend, the price forms a series of higher highs and higher lows. In a Downtrend, it forms lower highs and lower lows. When price moves sideways without a clear direction, the market is in a Range or Consolidation.
Identifying the trend is the foundation of price action trading. The phrase "the trend is your friend" exists because trading in the direction of the prevailing trend offers a statistical edge.
Timeframe and Trend
The trend depends on the timeframe you analyze. EUR/USD might be in an uptrend on the daily chart, a downtrend on the 1-hour chart, and a range on the 5-minute chart, all at the same time. Many traders use a top-down approach: identify the trend on a higher timeframe and then look for entries in that direction on a lower timeframe.
Trend Tools
Common tools for identifying trends include trendlines (connecting swing highs or lows), moving averages (price above the 200-day MA suggests an uptrend), and the structure of swing points (higher highs/lows vs. lower highs/lows).
Trends do not move in straight lines. They consist of impulse moves (in the trend direction) and corrections (counter-trend pullbacks). The best entries typically come at the end of a correction, when the price resumes the impulse direction. For a complete guide to reading trends, see Forex Trading for Beginners.
Related Terms
Uptrend
A market condition where the price consistently makes higher highs and higher lows, indicating that buyers are in control and the overall direction is upward.
Downtrend
A market condition where the price consistently makes lower highs and lower lows, indicating that sellers are in control and the overall direction is downward.
Moving Average
A widely used indicator that smooths price data by calculating the average closing price over a specified number of periods. Moving averages help identify trends and potential support/resistance levels.
Average Directional Index
An indicator that measures the strength of a trend without indicating its direction. ADX values above 25 suggest a strong trend; below 20 indicates a weak or absent trend. Often used with +DI and -DI lines to determine trend direction.
Ready to trade live?
XTB. Our pick for technical analysis. The xStation 5 platform with advanced charting, $0 minimum deposit, FCA and KNF regulated.
71% of retail CFD accounts lose money when trading with this provider.