Types of Trends
The price movement of a financial instrument in an identifiable direction is called a trend. Trend identification is the most basic function of technical analysis. A trend offers the opportunity to trade in its direction which enables a trader to capture a large movement.
Generally, trade in the direction of the trend is considered safer. Therefore the first step in trend analysis is to identify its direction. The simplest way to identify a trend direction is by looking at the chart. An uptrend would typically have higher highs while a downtrend would have lower lows.
Remember that the price does not moving up or down in a straight line therefore you would also see small corrections even in a trending market. When you spot the trend direction those corrections provide the opportunity to trade at a better price.
Uptrend
Take a look at the EUR/USD chart in which you can see that the EUR/USD is an uptrend. You can see that the pair is making higher highs which indicate the direction as well the trend momentum.
Down Trend
To understand a downtrend take a look at the below USD/CAD chart. You can see a downwards trend started near 1.4600 and ever since the pair is making lower lows which is an indication of an ongoing downwards trend. The lower lows are also indicating the momentum of the trend.
Sideways Trend
Now also take a look at the below USD/CAD which is showing a sideways trend. The price in a sideways channel generally remains contained. The sideways trends are often followed by a large upwards or downwards movement.
Trend Classification
The trends are mainly classified as major, intermediate, and minor trends. A major trend is made of several small trends. A minor trend is a trend that occurs within a larger it also helps to form the shape of a large trend. An intermediate trend is basically a consolidation phase that signals the making of a larger trend.
A longer intermediate trend is generally followed by even a longer major trend. Similarly, an intermediate trend can also form towards the end of a major which can be taken as the signal of a trend reversal.
Below is an example of the EUR/USD chart in which you can see an intermediate trend that is followed by a major uptrend. You can also see the minor trend within the major uptrend.