Broadly, there are three types of trends that you can decipher in the market and that include an uptrend, downtrend and a sideways trend. Each of these trends will have different implications for your trade and the amount of risk you can commit to a particular trade.

In technical analysis an Uptrend is identified by a series of higher highs and higher lows. The general movement over time is going upward. If you look at the price chart of a stock, you will find them volatile and making shapes like the slanting roof of a house. That means it keeps creating tops and bottoms or crests and troughs as we call it in technical analysis. The beauty of these crests and troughs is that they show a trend which can be useful in grasping the underlying trend of the stock or the market. For example, an uptrend is clearly defined if the subsequent tops and bottoms of each of these mini-roofs are at a higher level. If you can draw a parallel line set through these new highs and new lows, then you get an upward trend line which is an indication of an uptrend in the market or in the stock.

Unlike an Uptrend in technical analysis, a downtrend is identified by a series of lower highs and lower lows. The general movement over time is going downward. If you look at the price chart of a stock, you will find them volatile and making shapes like the slanting roof of a house. That means it keeps creating tops and bottoms or crests and troughs as we call it in technical analysis all the time and across ranges. The beauty of these crests and troughs is that they show a trend which can be useful in grasping the underlying trend of the stock or the market. For example, a downtrend is clearly defined if the subsequent tops and bottoms of each of these mini-roofs are at a lower level. If you can draw a parallel line set through these new peaks and new lows, then you get a downward trend line which is an indication of a downtrend in the market or in the stock.

The third trend in technical analysis is the Sideways Trend. It is identified by a series of flat highs and flat lows. The general movement over time is sideways. If you look at the price chart of a stock, you will find them volatile and making shapes like the slanting roof of a house. That means it keeps creating tops and bottoms or crests and troughs as we call it in technical analysis all the time. The beauty of these crests and troughs is that they show a trend which can be useful in grasping the underlying trend of the stock or the market. For example, a sideways is clearly defined if the subsequent tops and bottoms of each of these mini-roofs are at a flat level. If you can draw a parallel line set through these new highs and new lows, then you get flat / sideways trend line which is an indication of an uncertain sideways trend in the market or in the stock. A sideways trend is important for two reasons. Firstly, it shows that the market is unlikely to give any direction and hence traders can look at low volatility strategies using options. At the same time, the flat trend is normally an indication of a period of consolidation before the clear up trend or down trend emerges. That is the phase you can use to actually stay one step ahead of the market.