Trend (technical analysis)
To a trader who uses
technical analysis, the trend in price of a financial security is, intuitively, the general direction of its movement. Loosely, if someone who looked at the price chart would generally say the price is going up, the trend is up, and if someone would generally say the price is moving down, the trend is down. In many cases an observer would find it difficult to decide whether the price was generally going up or going down: in this case the trend may be said to be unclear. When price is oscillating back and forth across a range, the trend is often said to be sideways.
Common trend analysis methods
Trend analysis is specific to the time frame of the chart being looked at. A monthly chart might appear to be trending down while a daily chart appears to be trending up. Moreover, even on a specific chart, the direction of the trend can be open to disagreement.
A precise definition of the trend may be based on price ranges. If a series of higher highs and higher lows occur on a chart, an up trend is in place, and if a series of lower lows and lower highs occurs, a down trend is occurring.
Other definitions of trend are based on
indicators. For example, the trend may be simplistically defined to be up when a chosen short moving averageis higher than a chosen long moving average. Of course, the choice of which moving averages to use will affect whether an up trend or a down trend is found, and this simplistic approach would associate a trend with many unclear markets.
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