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Quick answer

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
  1. What is a trend?
  2. The three types of trends
  3. How to identify a trend
  4. Trends by duration
  5. How to draw trendlines
  6. Tools that confirm a trend
  7. How to trade each trend
  8. Worked example on EUR/USD
  9. How a trend ends
  10. Common mistakes
  11. FAQ

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, downtrend and sideways trend An uptrend with higher highs and higher lows above a rising trendline, a downtrend with lower highs and lower lows below a falling trendline, and a sideways range between flat support and resistance. UPTRENDHHHLHHHLHH DOWNTRENDLLLHLLLHLL SIDEWAYS ResistanceSupport
Uptrend: higher highs (HH) and higher lows (HL). Downtrend: lower highs (LH) and lower lows (LL). Sideways: price bounces between flat support and resistance.
  • 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.

TrendHighsLowsPrice vs 200 moving average
UptrendHigher highsHigher lowsMostly above
DowntrendLower highsLower lowsMostly below
SidewaysRoughly equal highsRoughly equal lowsCrossing 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.

TrendTypical durationBest chart to see it
Primary (long-term)Months to yearsWeekly and monthly
Intermediate (medium-term)Weeks to monthsDaily
Minor (short-term)Days to weeks4-hour and 1-hour
TipUse the higher timeframe to find the trend and the lower timeframe to time your entry. A pullback on the 4-hour chart is often just a buying opportunity inside a daily uptrend.

How do you draw a trendline step by step?

  1. Identify the trend firstCheck the highs and lows to confirm whether the market is rising or falling.
  2. Connect at least two swing pointsIn an uptrend, connect two or more swing lows; in a downtrend, connect two or more swing highs.
  3. Be consistent with wicks or bodiesDraw through the wicks or through the candle bodies, but use the same method on every chart.
  4. Wait for a third touchA third reaction from the line confirms that the market respects it.
  5. 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?

TrendStrategyEntryStop loss
UptrendBuy the pullbacksNear the trendline or a support zone, with a bullish confirmation candleBelow the last higher low
DowntrendSell the ralliesNear the trendline or a resistance zone, with a bearish confirmation candleAbove the last lower high
SidewaysTrade the edges, or wait for a breakoutBuy at support and sell at resistance, or enter after a close outside the rangeBeyond the range edge

Worked example: buying a pullback in an EUR/USD uptrend

EUR/USD · Daily and 4-hour charts Illustrative example with hypothetical prices
TrendHigher highs & lows
Entry1.0870
Stop loss1.0820
Target1.0990

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:

How an uptrend ends: trendline break and lower high Price rises along a trendline with higher highs and higher lows, then breaks below the trendline, makes a lower high that fails to reach the previous high, and breaks the last higher low, confirming the end of the uptrend. Last higher high 1. Trendline break 2. Lower high Last higher low 3. Break of the last higher low UptrendDowntrend begins
1. Price breaks the trendline. 2. The next rally makes a lower high. 3. Price breaks the last higher low, and the uptrend is over.

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

Follow the trend with us

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.

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