✔️ Information reviewed and updated in December 2023 by Eduardo López
One of the factors that we must take into account when carrying out financial and investment operations is the trend. That is why here we will tell you about everything you should know about trends, what they are, characteristics, how to identify them and more.
✨ What are trends? ✨
We could define it as a wave that reflects the behavior of consumers and the market. If there is panic, speculation, confidence, etc. The trend will reflect this in both bearish and bearish movements, also known as bullish or bearish movements.
We could also define the trend as the direction the market is going, the direction it will take in a sustained way for a given period of time.. The trend turns out to be very important, since it helps us to make decisions when, above all, to fix investment positions.
✨Characteristics of a trend✨
There are two clear characteristics. The first is movement, which is generally abrupt. If you see a tick or drop mark, then that is a characteristic of a trend. which, depending on the orientation, will be down or up.
Another way to identify heading is by using the Japanese candlestick indicator. The color of these candles can show us the meaning, since green is used for the upward or bullish trend and the red color, downward.
✨How to identify a trend? ✨
Identifying it is not as difficult as it seems, since these usually have a clear and marked movement. To do this, it is advisable to look at the graph for a long period of timeFor example, if you trade every hour, then look at it at 12 hours or 24 hours.
This will allow you to see movement patterns, that is, if the asset traded mostly lower, or if the asset traded higher. We also recommend taking into account signs of change such as abrupt movements, the color of the candles or even external situations that may influence.
✨How to confirm a trend? ✨
- Moving average: Being a fairly easy to understand average, the moving average allows you to know the behavior of the trend without being an expert in it. See how the media moved and in what direction to understand it.
- Relative strength index of currencies: Used as a comparative tool, this allows you to know how one currency has behaved with respect to another. In this way, you can get better conclusions about the trend., for example, if it is generalized or specific to certain pairs.
- Stock index: For those who trade stocks, the stock index is a good way to find out about trends in the market. This will show you what the behavior of investors and stocks is, which will allow you to determine if you are facing a trend and what type of trend it is.
✨Take this in mind✨
These are the main signs of confusion when identifying it:
- Short and medium term: It is very common to confuse the times when analyzing a trend. The ideal is to have a vision beyond the short term, since this allows you to make much more precise conclusions.
- Without trend: Yes, there are periods where we simply will not find a trend because the movement is not clear or they are very unstable. This is common, so we must understand that there will not always be a marked trend in the market, which must also be considered when making decisions.