A market trend is a perceived tendency of the financial markets to move in a specific direction over time. Analysts classify these trends as secular for long time-frames, primary for medium time-frames, and secondary for short time-frames.
A secular market trend may last for years or even decades and be shaped by structural shifts in the economy. For example, a growing movement towards sustainable energy could shape a new market trend that has lasting impact. A primary market trend can last for months to years and be influenced by changing business cycles.
Traders look for market trends to anticipate opportunities and plan profitable trades. For example, anticipating an uptrend enables them to buy assets at low prices. Analyzing pre-market trading activity, news headlines, and price changes in foreign markets that are already open allows traders to determine the direction of a new market trend ahead of its regular opening.
Uptrends are characterized by higher highs and lower lows on a chart. The simplest way to identify an uptrend is by drawing a line between three high points. Downtrends, on the other hand, are characterized by ever-lower highs. The simplest way to identify a downtrend is by drawing a line between two high points.
Minor trends, which are characterized by their lack of clear direction, are also difficult to analyze. This is because the micro supply and demand dynamics that drive them can be hard to predict. Using tools like the RSI or stochastics can help identify these fleeting movements, but they are not reliable indicators of their direction.