Different Market Trends
A Wealth of Knowledge
It is often said that the trend is your friend. So, at all times, one should trade in the direction of the trend. This is because for a trend to even form/occur from the first place. It indicates that the other party is predominant. So for instance, in an uptrend, it is clear that the bulls are predominant. So the saying "the trend Is your friend" imprints on to the trader that whatever they do, it should be in accord with the overall trend. The trend should be a trader's compass, it shows the overall direction of price, uptrend indicates that prices are increasing, and a downtrend indicates that prices are dropping or decreasing. With this in mind, one should be able to make a trading decision based on the trend being that in an uptrend one's is looking to buy and in a downtrend, one is only looking for selling opportunities. The trend should be your friend until the trend is over. One's has to be able to differentiate between different trends the market has to move in. No matter which trading instrument one's trading, the market will only move in three different trends ever. Those trends are either uptrend, downtrend or sideways. Okay? the market can either go up or down or sideways, as in, not going up or down, also called the flat market, ranging market. One can use whichever term of their preference, but the bottom line is that it refers to a market that is stagnant, meaning not going up or down but moving sideways.
So in many trading books, it is maintained that an uptrend is a market that is making higher highs and higher lows. This is to say that although the market will make lows from time to time because the market cannot move in a straight line. The lows it makes will be higher in comparison with the previous lows. So the recent low should be higher than the preceding lows. Hence the definition "higher highs and higher lows" lows are lows but they are higher lows relatively speaking. Same thing with the highs, the market will make new highs every now and then. This shows that the prices are going up, that is basically why the market would ever make highs higher than previous highs. Hopefully, that did not go over your head. So in an uptrend trader's expect the market to make a higher high from the previous high, that is how trader's know that the prices are still increasing. when the lows are high from each other, and highs are high as well from each other. So having the market making a lower low in an uptrend will be indicative that the momentum is dying out.
In a downtrend, there are basically, more sellers than the buyers. Hence the prices are falling, but not in a straight line as you may already know. The market will move in waves, which is how the definition of lower lows and lower highs. Meaning that the price is depreciating, hence the lower highs. This then alerts us as traders that although buyers attempt to push prices high the highs do not get as high as previous highs, which tells us that there is not enough buying power in order for the prices to reverse. So in such a case one is only looking for selling opportunities, never go against the trend. So in a downtrend, the market will make lower highs and lower lows in succession.
Range/ Flat market/ Sideways market
In a ranging market, the market will not move up or down as the case in an uptrend and a downtrend. Remember, in an uptrend, there are more buyers than sellers and in a downtrend, there are more sellers than buyers relatively speaking. Therefore in a ranging market/flat market or sideways market, the price will move sideways. This shows that they are more or less equal buyers and sellers. The price gets supported by buyers, upon reaching a specific price area and gets rejected by sellers upon reaching a specific price area. The market will be bounded by both support and resistance thus making the price move sideways.
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