The Trend Is Your Friend

The trend shows you which way prices are headed over time and helps you predict where prices are headed next. The idea is that once a trend is set in motion, it carries on until it reverses. A sort of Newton's Law. So if prices have been rising over the last n days, then they are likely to continue rising at the same rate. Trend following strategies buy into a rising trend and sell when that trend fails e.g. by price falling through the trendline which acted as support. And vice versa.



Trends come in 3 flavours:

1. an uptrend which is defined by a series of rising highs and rising lows.
2. a downtrend - falling highs and falling lows. 
3. no trend (or trendless) where prices range sideways.

Trend lines are shown by drawing a line that connects the rising lows in an uptrend and the falling highs in a downtrend. Most charting packages allow you do this easily. The more 'hits' your trendline has the stronger it is as support or resistance.

Identifying Trends & Drawing Trendlines