Trend is an umbrella term that encompasses several things. The word can also mean a trend or fad, i.e. a style. Trend is used to describe a generic trend in anything. It is usually used in marketing to make something seem more fashionable or popular.
Traders use trend analysis for two primary reasons: to enter and exit a position with higher profits potential and lower risks. A trend can last weeks, months, or even years. As a trader, you want to determine whether or not the trend is likely to continue. This is called a trend reversal.
There are different ways traders can use trend analysis. Traders who are new to trading may not understand why long-term trends are important. Short-term traders do not care about trends because they trade short term and their goal is simply to make money. However, trend analysis will help both types of traders look at the markets in a different way and find out what exactly is going on. Both types of traders will use trend analysis in order to find out where their opportunities lie.
As mentioned earlier, trend analysis can be used by novice traders who are trying to enter long-term trends but who also want to make money in smaller time frames. They may pick a few big ideas to follow and then use trend analysis to see how those ideas would fit together in the larger scheme of things. They may decide to jump on one or two trends, especially if they have a lot of free time, and ride them out for some time before moving on to the next trend.
Another reason to use trend analysis is to spot a long-term bull market. Most investors focus so much on the short-term fluctuations in the market that they miss the fact that bull markets are born out of times of prosperity and will eventually return. Trends will repeat themselves often in the long-term as well. Those who notice these cycles will be better prepared to enter them sooner rather than later. If you are able to see a trend reversal happening early on, then it could very well be your best chance at making money during that period of time. You may even be able to buy just before the trend reverses, if you wait long enough.
The main point to remember is that trends are created in time frames which are shorter than the average lifespan of any given trend. Beginners should try to identify and trade those trends as soon as they arise. The more time that you allow a trend to develop, the greater the chances are that you will be able to make money off of it. Remember, though, that trend reversals occur in both long-term and short-term bull markets, and they do not always happen at the same time. Trend reversals can also happen simultaneously in bear markets, although this tends to be rare.
