One of the basic concepts of technical analysis is the trend. Today, Olymp Trade’s Analysts will tell you all about these prices’ oscillations that are essential for traders to get the opportunity to make profitable deals. Sometimes, it is very easy to visualize and to identify the overall direction of a given asset. In the image we can clear see one of the first type of trend – the uptrend or bullish trend, which it is characterized by rising prices for new highs and higher local minimums.
However, there are occasions where prices’ movements are not so clear. In this case, a sideway/flat trend appears. It is characterized by horizontal trend lines that obstruct the asset’s volatility to a restricted trading range. Take a look at the image that shows how prices are inside of a trading range in the sideway trend.
In the flat trend there is a relative balance between the forces of supply and demand. It is believed that prices may stay between the limits of the range, limited by support and resistance lines of the trend, until the price breakouts above resistance or breaks below support lines.
As a final point about types of trends, the downtrend or bearish trend is characterized by lower prices for new low peaks and lower local minimums. As the opposite of the uptrend, the bearish trend suggests that supply is higher than demand, forcing sellers to offer lower prices for the same asset. Take a look at the image of a bearish trend.
Now that our Olymp Trade’s Analysts explained the 3 types of trends, let’s talk about how you identify the trend Lengths. Beside these 3 types of trend directions, there are 3 classifications you need to pay attention according to the time duration. A trend of any type can be classified as either a long-term trend, an intermediate trend or a short-term trend. Please carefully pay attention for the next two images. On the left, it is a CHFJPY chart with H4 time frame, on the right it is same currency pair with a daily chart time frame.
You can notice that the daily long-term trend is a bearish trend, however the H4 intermediate trend doesn’t show such strong downward movement. It is very important that you use the best chart time frame according to your trading strategy, but keep in mind that a longer time frame dominates shorter time frames.
After the explanation about types and duration of trends, let’s take a look in the main indicators that can help you to identify prices’ movement. Our Olymp Trade’s Analysts selected the most common trend indicator – Moving Averages. Take a look on the next image with EMAs (9,21) plotted on the EURUSD daily chart. As you can see, the direction of EMAs represent the type of the trend.
The moving average crossover is the most basic type of signal to find potential trend reversal. As you could see on the picture the buy signal happened when the shorter moving average (pink line) crossed above the longer EMA (blue line). Consequently, the bearish trend started when the shorter EMA crosses below the longer moving average. Now, with the help of Olymp Trade’s Analysts you know how easy is to understand assets’ charts and how stress-free is to start making profitable trades based on the prices’ movements and trends’ reversals.