Types of trends in technical analysis

When entering the world of investment to operate financial products, it is essential to educate our knowledge, making it progressive and gradual. In technical analysis there is nothing more basic and essential than identifying the trend in which we are going to operate. Regardless of the terms in which we want to do it (long, medium or short) it is essential to identify the types of trends in technical analysis.

Curiously, the shorter the trading period, the more relevant it will surely be to identify the primary trend in which the traded asset is located. But, before continuing with the different types of trend that we can find in a graph, the first thing is to define it.

What is trend in technical analysis？

The simplest and probably most clarifying definition would be the following: the trend is the direction in which the price of a financial asset evolves over a certain period of time.

It is vitally important to highlight the time frame , since trends can coexist in it, such as a bullish one in the long term with a bearish one in the short term. The important thing about the trend, in order to be able to trade in its favor, is that it is clearly identified .

Traders with many years of experience know this and it is the first thing they usually look at. It is much more productive to ride the “wave” of the inertia of the trend in which you want to move , than to try to “predict” the next turn of the market and get ahead of it. This last procedure, in most cases, leads to a substantial decrease in the probability of sustained success over time.

The importance of trend in technical analysis

But why is it so important when operating in the financial markets？ There is an aphorism that precisely exemplifies the importance of visualizing clearly and without doubt the trend of the financial asset in which we are investing: it has to be so obvious that “even a boy or girl is able to know if it goes up or down.” . Once we have defined what a trend is, we can go on to detail the three types of trends that we will find when studying the price graph of the security in which we want to operate.

What are the types of trends？

Like signs on a map, trends guide investors toward informed decisions. The three types of trends in technical analysis are: bullish, bearish and sideways . Let's look at them as an example, selecting one of the products preferred by retail investors: the Micro E-mini S&P 500 Future from the American market .

Three types of trends in technical analysis: bullish, bearish and sideways

Bullish trend

It is one in which in N periods, the asset presents a development in the increasing price structure, with clear increasing maximums and minimums in the graph.

Let's look at an example:

As can be seen, we can draw a clearly ascending arrow on the graph, without it having been pierced at any time.

Bearish trend

It is one in which in N periods, the asset presents a development in the decreasing price structure, with clear decreasing maximums and minimums in the graph.

Example of the bearish trend on the Micro E-mini S&P 500 Future chart

We see in the example in the graph above just the opposite case to the previous one. It is clearly seen how the arrow presents a corrective direction without there being a clear overshoot at any time in the development of the candles..

Lateral trend

Finally, we would have a third type, in which in N periods, the asset presents a price structure without there having been substantial increases or decreases, and similar maximums and minimums can be reflected in this time period. Next, let's look at another example on the Micro E-mini S&P 500 Future:

As can be seen in the blue rectangle drawn, there have been price movements and yet the highs and lows are similar.

Always in continuous training

In conclusion, we should not stop educating ourselves about markets and investment strategies. Always starting with simple and simple concepts, but establishing them well and strongly. And in this sense, technical analysis and trends can serve as a guide when making financial decisions. These currents, whether bullish, bearish or sideways, offer insight into market movements. The ability to discern patterns in highs and lows, draw trend lines, and know how to interpret trends can help a lot during times of uncertainty in the world of investing.