UK Accounting Glossary
Trend is the general direction of a market or of the price of an asset.
A trend is the overall general direction of movement in price (or other quantity) over a period of time. Trends may go up, down or sideways. They are important to investors, particularly those that use technical chart analysis to make trading and investing decisions. A trend may be spotted on a stock price chart simply by observing the general direction of prices on a stock chart. Another way to determine a trend is by drawing lines connecting the highest and/or lowest price peaks on a chart. If the lines drawn are higher on the right, that signals an uptrend; if they are lower on the right, prices are falling in a downtrend. If the lines appear to be flat, that is a sideways trend, meaning prices are stably staying in a range without much deviation. Some investors try to trade in the direction of the trend to minimize risk. These trend/following investors assume/believe that once prices begin to move in a trend, they tend to continue in that same direction. As an example, if prices are trending up (i.e. an uptrend), an investor might choose to enter a long position. If prices are trending down (i.e. a downtrend), that same investor might choose to open a short position.
Trends can vary in length from short, to intermediate, to long term. If you can identify a trend, it can be highly profitable, because you will be able to trade with the trend.
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This glossary post was last updated: 5th February 2020.