What Are Trends and Trend Volatility

What Are Trends and Trend Volatility

Definition of a Trend

A trend is the main tendency of change in something. In the context of trading, it refers to the tendency of price changes in any asset, such as a stock. Let’s take the daily chart of the S&P 500 index as an example.

On the chart, we can clearly see rising extremums. In trading, the terms High and Low are used to describe the highest and lowest points on the chart over a specific time period, respectively. On the chart, both Highs and Lows are increasing. This meets the definition of an upward trend (up trend).

Trend Direction

A trend can have three directions: upward (up trend), downward (down trend), or sideways (flat). Let’s examine each of them:

• Upward trend is characterized by rising extremums. It is also referred to as an up trend, upward movement, or rising price trend.
• Downward trend is characterized by falling extremums. It is also called a down trend or declining trend.
• Sideways trend occurs when there are no significant price changes, and the price moves within a horizontal range.

Simple Definition of a Trend

How can you simply identify a trend on a chart? Look at where the price was on the left and where it is on the right. If the price was lower on the left and higher on the right, it’s an upward trend. For illustration, this can be observed on the S&P 500 chart.

A downward trend (down trend) is characterized by the price starting higher on the left and ending lower on the right.

Volatile Trends

We previously discussed the concept of volatility in this article. Now, let’s explore how volatility applies to trends. Trends can be low-volatility or high-volatility.

• Low-volatility trend is characterized by smooth movement with minor pullbacks. Candlesticks are relatively small, and there are few large candlesticks.
• High-volatility trend is the complete opposite. Despite having a clear direction, it contains many large candlesticks, gaps, and breaks.

Participants in a Low-Volatility Upward Trend

The U.S. stock market includes a wide range of participants: funds, corporations, investors, speculators, and traders, all of whom contribute to the formation of price charts. Major trends are driven by large investments, and the actions of major players are often indicated by low-volatility upward trends.