A market trend is the general direction that an asset or a market is moving. It can be bullish (moving up) or bearish (moving down). Traders seek to identify and follow trends so they can make informed investments that align with their trading plan.
For example, if an asset price is rising, a trader may assume it will continue to rise unless there are clear indications that the trend could reverse. A key indicator to watch is volume, which can offer insight into how strongly traders are buying or selling. Technical indicators like the Relative Strength Index can also provide information on the momentum of a move. When RSI is closer to 100, it suggests that buyers are in control and that there’s potential for a continued upward shift.
Understanding market trends is crucial for businesses, particularly those in competitive industries. Catching a new market trend early can help them stay ahead of the competition and potentially steal market share. It can also help them adapt their operations and strategy to keep up with the changes.
The study of market trends dates back to Charles Dow’s principles, which formed the basis for technical analysis. However, reliance on trend metrics can be dangerous because they don’t take into account all factors that influence an investment or market movement. For example, macroeconomic policies, geopolitical events and industry-specific news all have the ability to impact how a market or an asset will behave.