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What is a trend?


What is a trend?


A trend is directional movement of prices that remains in effect long enough to be identified and still be profitable. Anything less makes technical analysis useless. If a trend is not identified until it is over, we cannot make money from it. A trend must be recognized early and be long enough for the technician to profit. Also remember that there are trends of different lengths, shorter trends are the part of longer-term trends.

How to identify Trend

We can identify trends by looking at graph of prices for extreme points, tops and bottoms, separated by reasonable time periods, and how to draw lines between points.want to learn how to draw trend-line click here. 

Trends Develop from Supply and demand

As in all markets, whether used cars, grapefruit, real estate or industrial products, the economic principle of  interaction between supply and demand determines prices in trading markets. Each buyer(demand) bids for a certain quantity at a certain price, and each seller (supply) offers or asks for a certain quantity at a certain price. When the buyer and seller agree and transact, they establish a price for that instant in time.The reason for buying selling can be complex – Buyer and sellers can be speculators,Buyers wants to invest or seller needs money for emergency or may be he heard some internal news—whatever the reason. The price is established when all this information is collected, digested, and acted upon through the bid and offer. To read more about demand and supply with example click  here.

Types of trend: -

        Uptrend: -  An upward trend, or uptrend, occurs when prices reach higher peaks and higher troughs. An uptrend is shown in below Figure.

Uptrend


           Downtrend: - It is opposite to uptrend: when prices reach lower troughs and lower peaks. An Downtrend is shown in below Figure.

Downtrend

          Sideways or Flat trend: -occurs when prices trade in a range without significant underlying upward or downward movement. Below chart is an example of a sideways trend; prices move up and down but on average remain at the same level.
Sideways Trend


Refer to this video to learn more about Technical Analysis: - 

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