What is the Market Trend? Definition & Meaning
Market trend means a certain direction of price movement over a particular period. Trends apply to all assets the cost of which is fluctuating, or when there’s a change in the trading volume.
A trend on Forex and other financial markets is usually understood as a price movement formed within a certain period of time with a clear direction and strength. Direction is the key point that characterizes market trends - traders use it to make trading decisions and maximize their income.
According to the basics of technical trend analysis, price changes are always subject to certain rules.
This fact allows successful traders to analyze the predictable price tendencies of the currencies and other market instruments. The systemic character of changes in price charts makes it possible to trade on financial markets with currencies and other investments, forecast the future price rates of assets and make the right trading decisions. Within technical analysis, there are countless indicators, advisers, and graphic patterns that serve as tools for a professional trader. Most of these tools are based on the concept of a price movement.
There are three major types of market trends:
Bull market trends (upward price movement) — when prices move up. It is represented by a series of rising price highs and lows. As long as each subsequent peak is higher than the previous ones, the uptrend remains.
Bear market trends (downward market trends) — when prices move down. Any unsuccessful attempt to surpass the previous high is an early signal of a trend reversal. A downtrend is characterized by a series of descending peaks and troughs.
Sideways (flat markets) — the absence of a pronounced one-direction movement (this is a natural and most frequent market condition).
According to the Dow theory, trends continue until there is an unambiguous signal of their termination.
Depending on the duration, trends can be:
Long-term (major) lasts from six months to several years.
Intermediate (secondary, medium term) usually means a correction of the main trend and can last 1-6 months.
- Short term trends (minor) is often a correction or consolidation that lasts less than 1 month. It can be a pause in an intermediate or major trend. Also, short term trends can be revealed even on intraday charts.
Note: Do not mix up market trends with market sentiment. The latter means traders’ attitude towards the upcoming price move (their opinion does not equal real market conditions).