Simply put, short-, intermediate- and long-term trends are the three kinds of trends that we see each day in our study of technical analysis. “A trend is your friend,” is just one of the sayings that have come out of the study of primary as well as secular trends. Given the understanding that the psychology of the markets actually moves the markets, we can acknowledge that psychology develops and ends the trends we are going to look at today.

Learning how to identify the trend should be the first order of business for any student of technical analysis. Most investors, once invested in an uptrend, will stay there looking for any weakness in the ride up, which is the indicator needed to jump off and take the profit.

Primary Markets
The bull and bear markets are also known as primary markets; history has shown us that the length of these markets generally lasts from one to three years in duration.

Secular Trends
A secular trend, one that can last for one to three decades, holds within its parameters many primary trends, and, for the most part, is easy to recognize because of the time frame. The price-action chart, for a period of 25 years or so, would appear to be nothing more than a number of straight lines moving gradually up or down. Have a look for a moment at the chart of the S&P 500 below. The chart shows the progress of the markets from the 1980s through the mid-2000s, showing the rise of the market leading up to the turn of the century.

 

Intermediate-Trends
Within all primary trends are intermediate trends, which keep the business journalists and market analysts constantly searching for the answers for why an issue or a market suddenly turns and heads in the direction opposite to that of yesterday or last week. Sudden rallies and directional turnarounds make up the intermediate trends and, for the most part, are the results of some kind of economic or political action and its subsequent reaction.

DEFINITION of Uptrend

An uptrend describes the price movement of a financial asset when the overall direction is upward. In an uptrend, each successive peak and trough is higher than the ones found earlier in the trend. In the example below, notice how each successive high and low is located above the previous ones.

What is a Downtrend

A downtrend occurs when the price of an asset moves lower over a period of time. While the price may move intermittently higher or lower, downtrends are characterized by lower peaks and lower troughs over time. 

BREAKING DOWN Downtrend

Many traders seek to avoid downtrends because they can adversely affect the value of any investment. A downtrend can last for minutes, days, weeks, months or even years, so identifying a downtrend early is very important. Once a downtrend has been established (series of lower peaks) a trader should be very cautious about entering into any new long positions.

Short sellers seek to profit from downtrends by borrowing and then immediately selling shares with the agreement to repurchase them in the future. These are known as short positions or short selling. If the asset’s price continues to decline, the trader profits from the difference between the immediate sale price and the lower future repurchase price.

Examples of Downtrends

Let’s take a look at an example of a downtrend:

History tells us that the rallies in bull markets are strong and that the reactions are somewhat weak. The flip side of the coin shows us that bear-market reactions are strong and that the rallies are short. Hindsight also shows us that each bull and bear market will have at least three intermediate cycles. Each intermediate cycle could last as little as two weeks or as long as six to eight weeks.

 

 

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