What is Trend?
In short
The general direction of price. An uptrend makes higher highs and higher lows (HH/HL); a downtrend the opposite (LH/LL).
Also known as: HH, HL, uptrend, downtrend
A trend is the general direction of price over a period of time. The classic definition is based on highs and lows (swing points):
- Uptrend — each new high is above the previous one (HH, higher high) and each low is above the previous low (HL, higher low).
- Downtrend — both highs and lows keep falling (LH, LL).
- Sideways (range) — highs and lows sit at roughly the same levels; no clear direction.
Why it matters
"The trend is your friend": trades in the direction of the trend tend to work more easily than trades against it. In an uptrend, dips can be buying opportunities; in a downtrend, every rally runs into selling.
How to identify it
- The sequence of highs and lows (the core method — market structure).
- A trendline connecting the lows.
- A moving average — price above the 50- or 200-day average while the average itself is rising.
Limitations
Trend depends on the timeframe: the daily can be rising while the hourly is falling. Trends don't last forever, and turning points are only obvious in hindsight. So even when trading with the trend, a stop is essential.
Each high (HH) and each low (HL) is above the previous one. The blue line is the moving average — it lags behind price.
Each high is lower than the last ($116.60 → $113.50 → $110.30) and so is each low ($110 → $106.60 → $103.20). The red line connects the highs — sellers step in whenever price gets near it. Every "it's cheap now" purchase here ended in a loss.
Example
Illustrative case, daily chart:
- Lows: $40 → $43 → $46 (each above the last — HL).
- Highs: $45 → $48 → $51 (each above the last — HH).
That is a textbook uptrend. The last low at $46 is the key point: as long as price doesn't close below it, the HH/HL sequence is intact.
Now suppose price falls from $51 to $45.50 and closes there. The last low ($46) is broken — a break of structure and the first warning that the uptrend may be ending. A trader who bought with the trend often places the stop just below exactly that low.
Mistakes and tips
Define the trend on the higher timeframe first — a decline on a lower timeframe is often just a pullback within the bigger trend.
Trading against the trend is hard even for experienced traders: waiting for a confirmed reversal is safer than guessing it.
Entering late in a long-running trend is risky — the stop is far away and much of the move has already happened.
Frequently asked questions
- How do I know when a trend has changed?
- The first sign is a close beyond the last significant low (in an uptrend) or high (in a downtrend). If price then forms highs and lows in the new direction, the reversal is confirmed.
- What should I do in a sideways market?
- Trend strategies work poorly in ranges. Many traders trade the edges of the range or wait for a breakout.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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