The market moves in a trend and “trend is your friend until its bend”, a saying which every trader or investor should follow. It is one of the most important principles of Dow Theory. Analysis of Market trend is considered to be important as it is a reflection of market behaviour.
- What is Market Trend?
The trend is a particular direction in which the market moves over a specific period of time. Market Trend is made up of peaks and troughs which are formed by the movement of market prices in a particular trend.
- Types of Market Trends
Market Trend can be classified on the basis of 2 categories;-
1. Duration of Market Trend
2. Direction of Market Trend
On the basis of Duration of Market Trend, it can be further differentiated into 3 types;-
1.1 Primary trend
It is a major trend of the market which lasts for a year or more, reflecting typically a bull or a bear market.
1.2 Secondary trend
It is an intermediate trend and is actually a correction in the primary trend as it moves in the opposite direction to the primary trend like retreating in a bull market and advancement in a bear market. It lasts for 3 weeks to 3 months.
1.3 Minor trend
It is a correction in Secondary trend as it moves against it. It is considered a “noisy market”. It lasts for less than 3 weeks.
These 3 Market Trends can work simultaneously for example,
Primary Trend can be bullish or advancing but have a Secondary bearish or declining Trend and Secondary Trend can have a bullish or advancing Minor Trend within it.
On the basis of Direction of Market Trend, it can be further differentiated into 3 types;-
It is marked when the price is moving in an upward direction with higher peaks or highs and higher troughs or lows.
It is marked when the price is moving in a downward direction with lower peaks or highs and lower troughs or lows
The third trend is actually known to be trendless, as it moves horizontally in waves with no significant upward or downward movement in the price.