You have probably heard the joyful wish “may the trend be with you!” There is another one that goes “the trend is a friend” …. but we added “until it bends!” So what does it really mean when someone says from June to September, the ABC stock was in an up trend?

It means that during those months, the price of ABC was mostly growing. We say “mostly” because during this period the market will also drop on a few temporary occasions. This is called a correction and happens when the prices drop slightly, but the new low they form is higher than the previous. Here is how you establish the direction of a trend. You draw a diagonal line, connecting no less than 3 low points. If every next low is higher than the previous, this line will be pointing north, indicating an up trend. Stocks also trend south, where you can profit if you sell and the price drops after this.

Here is how to properly detect a down trend. As the price ABC stock drops from September until December, on a few occasions it is expected to temporary jump to the upside. This also called a correction, but this time an upward one. You then draw a diagonal line connecting no less than 3 high points. If every next high is lower than the previous, then we say the stock is in a down trend. 

A profitable trading strategy could be buying the low points in an up trend and selling the high points in a down trend.