We have often heard about trends in forex and stock market and resistance and support. Lets highlight what is Trend and Trendlines all about.
Types of Trends
There are three types of trends:
Uptrend (higher lows)
Downtrend (lower highs)
Sideways trends (ranging)
An uptrend describes the price movement of a financial asset when the overall direction is upward. In an uptrend, each successive peak and trough is higher than the ones found earlier in the trend.
The downtrend is characterized similarly to an uptrend — but in the opposite direction. The peaks and troughs in the chart continue to drop as the trend goes on.
It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.
The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.
In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys).
In a downtrend line, the trend line is drawn along the top of easily identifiable resistance areas (peaks).
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