September 16, 2021

Trending Markets Definition

Trending Markets Definition

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Trending markets are ones that go in one primary direction for a sustained period of time. 

Here are the signals for an up trending market:

  1. The chart makes higher highs and higher lows. 
  2. Price is trending above the moving average of the time frame being analyzed. 
  3. Price is near all-time highs or 52-week highs. 
  4. The candlesticks on the chart are bullish, primarily white or green. 
  5. Ascending trendlines can connect unbroken higher highs and higher lows. 
  6. Moving averages are ascending higher. 
  7. Volume increases as the chart moves higher. 

Here are the signals for a down trending market:

  1. The chart makes lower highs and lower lows. 
  2. Price is trending below the moving average of the time frame being analyzed. 
  3. Price is near all-time lows or 52-week lows. 
  4. The candlesticks on the chart are bearish, primarily red or black. 
  5. Descending trendlines can connect unbroken lower highs and lower lows. 
  6. Moving averages are descending lower.
  7. Volume increases as the chart moves lower. 

All markets go through repeating cycles of being range bound, volatile, through downtrends and through uptrends. 

A trader should focus on the signals for the trend in the timeframe they are trading in. A swing trader should be very interested in the 10-day moving average while a long-term trend follower can watch the 200-day moving average. 

“The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?” – Richard Weissman

What markets should be backtested for trend trading signals?

  • Stock indexes: S&P 500, NASDAQ 100, DJIA, Russell 2000, etc. 
  • Liquid stocks: Big caps, small caps, growth stocks, value stocks, etc.  
  • Bonds
  • Interest Rates
  • Currencies and forex
  • Metals: Gold, silver, copper, etc
  • Energy: Oil, Natural Gas, etc.
  • Agricultural: Wheat, Corn, Soybeans, etc.
  • Softs: Coffee, Sugar, Cotton, etc.

What should trend followers trade?

  • Exchange traded funds (ETF)
  • Stocks
  • Futures contracts
  • Option contracts
  • Currencies
  • Forex
  • Liquid Cryptocurrencies: BTC, ETH,  ADA, DOGE, etc
  • Mutual FundsTrending Markets Definition

Chart courtesy of TrendSpider.com