Types of Trends in Stock Market (Dow Theory)
When we study the patterns of movements in the stock price of any stock, we find that the stock price moves in trends. There are three types of trends observed in the stock market.
1. Uptrend
2. Downtrend
3. Sideways trend
Before getting into the details of the above trends, let us understand the concept of highs and lows in stock price.
When the stock price moves as the time passes, it can make some higher points than the adjoining price points or some lower points than the adjoining points. These are called swing highs or swing lows. Please check the diagram below.
When these highs and lows are formed in a particular pattern, we can identify trends in the stock price.
1. Uptrend
You can buy stocks that are in uptrend.
2. Downtrend
3. Sideways trend
You need to avoid trading in stocks that are in sideways trend as the price is not moving in any direction beyond the range. you can buy or sell only when the price breaks out from the range in either direction.