Trading From Main Street

[Toni Hansen]

TRENDS: AN INTRODUCTION

A trend is the primary direction of price movement in a given time period. A stock may have a number of different trends going at the same time so it is important to determine the time period you want to focus on. The trend we use most often in swing trading is the daily trend but you should also be able to identify the weekly and intraday trends as well.

Simply put an uptrend is a series of higher highs and higher lows while a downtrend is a series of lower highs and lower lows. The third type of trend is a sideways trend. This occurs when prices move up and down within an established range. The following image is designed to give you a basic idea of what the three types of trends look like.

http://www.swingtrader.net/lessons/trend1.gif

In an uptrend note how each new high is higher than the previous one while each successive low is also higher. Often the high of the last "swing" in the trend will serve as support for the next low. These areas are circled.

In a downtrend note how each low is lower than the previous one while each successive high is also lower. Often the low of the last "swing" in the stock's trend will serve as resistance for the next high. These are also circled.