What is a trend?
It’s the general direction of price movements over a period of time. Trends apply to all assets and all markets where there is movement on prices or volumes bought and sold.
Trends can be short, medium or long-term. All trends offer the opportunity to profit, a trend trader may follow a trend over a 3-year period, for example, but a swing trader will hold stock for a shorter time, perhaps just a few weeks or overnight.
Where have you heard about trends?
If you’re an investor, or simply interested in the economy, you’ll hear about market trends all the time. Trends are often discussed in relation to interest rates, although they can also apply to shares.
What you need to know about trends...
Four major and linked factors are thought to shape trends: governments, international money transactions, speculation and expectation, and supply and demand.
Trends are analysed using historical price movements against a current price.
Trend traders are investors who calculate their risk against an upward or a downward market trend. They focus on market data to make their decisions, rather than individual company performance. For them, ‘the trend is a friend’, and it is considered unwise to work against it, however, surprises can happen and investors can make losses if things go against them unexpectedly.