CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trading with the Trend

Related subjects:
Reading time: 3 minute(s)
The financial markets can move in two distinct trends: up or down. One of the most basic - and often underrated - rules of trading is to trade in the direction of the prevailing trend. Learn how to identify trends, and what to do when a market is moving sideways.

In this lesson you can learn:

  • Why the trend is the friend of every trader
  • How to identify whether the market is in a downtrend, uptrend or sideways trend
  • How to draw a trendline on the chart

One of the most popular quotes in trading - and you’ve probably come across it before - is ‘the trend is your friend.’

What it means is this: trading the path of least resistance by always trading in the direction of the prevailing trend. Imagine a wave moving towards the shore; the easiest thing a trader can do is ride atop the crest of that wave, not swim against it.

Of course, a trend can change at any given time, but you can use technical indicators to try to pinpoint at which point a trend is likely to change direction.

Up, Down, Sideways

All financial markets move in two distinct trends: up or down. When markets are not in a trend, they are then moving sideways, where there is an ongoing battle between sellers and buyers. Correctly identifying which type of trend a market is currently in can help to present strong opportunities that come with transparent guidelines.

A Rising Market

If a market is rising, you may consider buying that market and trade with the prevailing trend, i.e. take the path of least resistance. The key will be picking the right moment to get into a buy position. Ideally you want to get into the buy position as low as possible, to maximise your potential upside. Some traders may wait for a pullback (a small dip in the market), but this carries the risk of waiting too long to get into the market and you could miss out on further upside.

A rising market, also known as an uptrend or bullish market, shows a series of higher highs and higher lows. In other words, each bottom (support) is higher than the previous one.

A Falling Market

Conversely, if a market is falling you may consider selling that market. To maximise your potential downside, you would need to enter that market as high as possible, which would enable you to maximise any downward move in price.

A falling market, also known as a downtrend or bearish market, is where the market creates lower lows and lower highs.

How to Determine the Trend

Conventional technical analysis says that during an uptrend you have higher highs, because buyers are in the majority and push prices higher, and lows are also higher because buyers keep buying the dips earlier and earlier. This also applies during a downtrend: lows are lower when the seller surplus moves prices lower, while highs are lower because sellers sell earlier and buyers are not as interested. That is why the easiest way to identify a trend is to connect two highs or two lows that you identified on the chart with a line.

The Trend Is Your Friend - Until It Ends

However, markets do not always trade in clear trends 24 hours a day, 7 days a week. There are stabilisation periods in every market, which are also known as sideways trends.

A market moves sideways when it’s at a point of indecision and buyers or sellers are at an impasse. Buyers and sellers test each other, but no pure consensus emerges. Here, most traders face two potential strategies: range trading or waiting for a breakout.

As you can see in the example below, the EURUSD was trading sideways before a downtrend was established and sellers overpowered buyers, driving prices downwards.

When Identifying a Trend

One of the most important things when identifying a trend is determining your time frame. Usually, when you are analysing a long-term trend, you’ll use a long-term time frame over a short-time frame. However, for intraday purposes, shorter time-frames are of greater value. Large commercial traders might be interested in the fate of a currency or company over a period of months or years. For retail traders however, a weekly chart can be used as a ‘long-term’ reference.

Riding the Waves of the Trend

By definition, trend analysis is based on historical price movements. That means that traders are looking at the past to predict the future.

Knowing the direction of the trend does help in taking positions, but bear in mind that markets tend to move in waves. These waves are called impulse waves when they are in the direction of the trend, and corrective waves when contrary to the trend.

By counting the waves or pivots in each wave, you can attempt to anticipate whether a trading opportunity will be against the trend or with the trend.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Xtb logo

Join over 935 000 investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 2 March 2024
adobe_unique_id cc 1 March 2025
test_cookie cc 1 March 2024
SESSID cc 9 September 2022
__hssc cc 1 March 2024
__cf_bm cc 1 March 2024
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-22576382-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_ga_CBPL72L2EC cc 1 March 2026
_ga cc 1 March 2026
AnalyticsSyncHistory cc 8 October 2022
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
__hstc cc 28 August 2024
__hssrc

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 26 March 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 2 March 2024
_uetvid cc 26 March 2025
_fbp cc 30 May 2024
fr cc 7 December 2022
muc_ads cc 7 September 2024
lang
_ttp cc 26 March 2025
_tt_enable_cookie cc 26 March 2025
_ttp cc 26 March 2025
hubspotutk cc 28 August 2024

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id cc 7 September 2024
UserMatchHistory cc 8 October 2022
bcookie cc 8 September 2023
lidc cc 9 September 2022
lang
bscookie cc 8 September 2023
li_gc cc 7 March 2023

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language