There are three types of trends in trading: an uptrend, where price makes higher highs and higher lows; a downtrend, where price makes lower highs and lower lows; and a sideways trend (range), where price moves between flat support and resistance. Trends are also classified by duration into primary, intermediate, and minor trends. Traders buy pullbacks in uptrends, sell rallies in downtrends, and trade the edges or wait for a breakout in ranges.
Key takeaways
- Market structure, the pattern of highs and lows, tells you the trend before any indicator.
- A valid trendline needs at least two touches; a third touch confirms it.
- Trading with the trend of the higher timeframe improves your odds.
- A trend ends when price breaks the trendline, makes a lower high, and breaks the last higher low.
Table of contents
What is a trend in trading?
A trend is the general direction in which price is moving over a period of time. Prices never move in a straight line: they move in waves, with impulses in the direction of the trend and pullbacks against it. Identifying the trend correctly is the first step of any technical analysis, because “the trend is your friend”: trades in the direction of the trend have better odds than trades against it.
What are the three types of trends?
- Uptrend (bullish)Each high is higher than the last, and each pullback stops above the previous low. Buyers are in control.
- Downtrend (bearish)Each high is lower than the last, and each drop breaks below the previous low. Sellers are in control.
- Sideways trend (range)Price moves between roughly flat support and resistance. Neither side is in control.
- Why it mattersEach type calls for a different strategy, so you should know which one you are in before you trade.
How do you identify a trend?
The simplest and most reliable method is market structure: compare the latest swing highs and swing lows.
| Trend | Highs | Lows | Price vs 200 moving average |
|---|---|---|---|
| Uptrend | Higher highs | Higher lows | Mostly above |
| Downtrend | Lower highs | Lower lows | Mostly below |
| Sideways | Roughly equal highs | Roughly equal lows | Crossing back and forth |
What are primary, intermediate, and minor trends?
Based on Dow Theory, trends are also classified by how long they last. A small trend can move against a bigger one, which is why it is important to know which trend you are trading.
| Trend | Typical duration | Best chart to see it |
|---|---|---|
| Primary (long-term) | Months to years | Weekly and monthly |
| Intermediate (medium-term) | Weeks to months | Daily |
| Minor (short-term) | Days to weeks | 4-hour and 1-hour |
How do you draw a trendline step by step?
- Identify the trend firstCheck the highs and lows to confirm whether the market is rising or falling.
- Connect at least two swing pointsIn an uptrend, connect two or more swing lows; in a downtrend, connect two or more swing highs.
- Be consistent with wicks or bodiesDraw through the wicks or through the candle bodies, but use the same method on every chart.
- Wait for a third touchA third reaction from the line confirms that the market respects it.
- Don’t force the lineIf you have to cut through many candles to make it fit, it isn’t a valid trendline. Very steep lines (much more than 45°) usually break soon.
Which tools help confirm a trend?
- Moving averagesPrice above a rising 200-period moving average supports an uptrend; below a falling one supports a downtrend. The 50 often acts as dynamic support or resistance.
- Trend channelsA parallel line drawn from the opposite swings shows where the trend tends to stretch to.
- ADXReadings above about 25 suggest a strong trend; low readings suggest a weak trend or a range.
- RSIIn uptrends RSI tends to stay above 40–50; in downtrends it tends to stay below 50–60. RSI and MACD lesson →
How do you trade each type of trend?
| Trend | Strategy | Entry | Stop loss |
|---|---|---|---|
| Uptrend | Buy the pullbacks | Near the trendline or a support zone, with a bullish confirmation candle | Below the last higher low |
| Downtrend | Sell the rallies | Near the trendline or a resistance zone, with a bearish confirmation candle | Above the last lower high |
| Sideways | Trade the edges, or wait for a breakout | Buy at support and sell at resistance, or enter after a close outside the range | Beyond the range edge |
Worked example: buying a pullback in an EUR/USD uptrend
The trend: on the daily chart, EUR/USD has made three higher highs and higher lows, and price is above a rising 200-day moving average.
The trade: price pulls back to the rising trendline, which lines up with the 50-day moving average near 1.0865. A bullish engulfing candle closes on the 4-hour chart at 1.0870, so you buy, with the stop loss below the last higher low at 1.0820 (50 pips of risk) and the target at the previous high near 1.0990 (120 pips), a risk-to-reward ratio of about 1:2.4.
How do you know when a trend is ending?
Trends rarely end in one candle. An uptrend usually changes in three steps, and the same logic applies in reverse to a downtrend:
Other warning signs include weaker momentum on each new high, such as a bearish divergence on RSI, and reversal patterns like the head and shoulders or a rising wedge.
What are the most common trend trading mistakes?
- Trading against the trendTrying to pick tops in an uptrend or bottoms in a downtrend is the most common way beginners lose money.
- Calling a reversal too earlyOne big red candle in an uptrend is usually a pullback, not a reversal. Wait for the structure to change.
- Forcing trendlinesA line that cuts through many candles or connects random points gives false signals.
- Ignoring the higher timeframeA 1-hour downtrend inside a daily uptrend is often just a pullback.
- Trading ranges like trendsIn a sideways market, breakouts often fail. Trade the edges or wait for a confirmed breakout.
- Chasing extended movesBuying after a long, steep run without a pullback gives a poor entry and a wide stop.
Types of trends FAQ
What are the three types of trends?
The three types of trends are the uptrend, with higher highs and higher lows; the downtrend, with lower highs and lower lows; and the sideways trend or range, where price moves between flat support and resistance.
How do you identify an uptrend?
An uptrend is identified by higher highs and higher lows, with price usually trading above a rising 200-period moving average and respecting a rising trendline.
How many touches does a trendline need?
A trendline needs at least two touches to be drawn, and a third touch confirms that the market respects it.
What is a sideways trend?
A sideways trend, or range, is a market where price moves between roughly flat support and resistance without making clear higher highs or lower lows. Traders either trade the edges of the range or wait for a breakout.
What are primary, intermediate, and minor trends?
They are trends classified by duration: primary trends last months to years, intermediate trends last weeks to months, and minor trends last days to weeks. Each is best seen on a different timeframe.
How do you know when a trend is reversing?
A trend usually reverses in steps: price breaks the trendline, makes a lower high in an uptrend or a higher low in a downtrend, and then breaks the last swing low or high. Momentum divergence and reversal patterns are additional warning signs.
What is the best way to trade a trend?
The most common approach is to trade with the trend: buy pullbacks to support or the trendline in an uptrend, and sell rallies to resistance or the trendline in a downtrend, with the stop beyond the last swing point.
Related lessons
- 1Introduction to Technical AnalysisBeginner
- 2Support and Resistance ZonesBeginner
- 4Head and Shoulders PatternAdvanced
- 5Rising and Falling WedgesAdvanced
- 6RSI and MACD with Chart PatternsAdvanced
Our daily analysis identifies the trend and key levels on major forex pairs and gold every trading day.
Further reading: Trendline — Investopedia
Risk warning: This article is for educational purposes only and is not investment advice. Trading forex, gold, and other leveraged products carries a high risk of losing your capital.