What is a trend? The trend is simply the direction of the market,
so which way the currency pair is moving.
But when you have a look at the chart, the first thing that you notice is that there is no straight
line to help you to identify any direction.
You never see something like this, but you can see something like this. Even if it is quite obvious that
the price is going up,
How can you say that? Let's analyze this example.
You need to have a look at the highs and lows that are formed on the market. In this example, we start
from here
and the price goes up before having a change of direction.
So just focusing on these three points, we can say that the first one is the first low.
Then the price reaches a high and then it goes back to form a second low.
Then it starts to go up again and we have a new high.
And then at the end we have the price that forms the third low.
Now, are these highs and lows growing?
Yes.
The second low has a higher price than the first one and the third low has a higher price than the second
one.
The same thing for the highs.
So you can say that the price is not going up as a straight line,
but, overall, the price is going up because new highs and new lows are higher than the previous ones.
This concept defines an uptrend. When new highs and new lows are always lower than the previous ones,
we have a downtrend.
We also have a third type of trend, that is the situation when the price is not going up but it's not
even going down.
This trend is called Sideways trend.
In this situation the price moves in a range that is defined by a support at the bottom and a resistance
at the top.