In Forex, trends are used to represent the direction in which the market is headed.
Types of trends
When the price of an asset or a security increases steadily over a period of time, it is said that the price is in an uptrend.
Downtrends represent the movement of the price when the overall direction is downward. Usually traders avoid using downtrends because they can drastically affect the value of the investment.
A sideways trend is drawn by two horizontal trend lines which prevent prices from large upward or downward movements, keeping fluctuations in a certain range.
- An upward trend suggests that demand is greater than supply making investors pay higher prices for the same asset.
- A downward trend suggests that supply is overwhelming demand as sellers agree to accept lower prices for the same asset.
- A sideways trend indicates relative balance between demand and supply forces and the price is expected to stay inside the range indicated by the trend lines until one of them is broken.