Chapter 6 Trends and sideways movement in financial markets
The definitions of trend and sideways can be easily distinguished by observing the price patterns depicted in the following figure. The difference between the two can be readily discerned with the naked eye by analyzing the price action from point A to point B.
In the financial markets, the term "price trends" refers to unidirectional price movements over a specific time period. During an uptrend, buyers are willing to purchase at higher prices and have a stronger desire to buy. Conversely, during a downtrend, the opposite is true.
On the other hand, "price oscillation" refers to interval-based price movements over a specific time period. When the price reaches the boundaries of the interval, counteracting forces enter the market and cause the price to revert back.
While these two concepts may seem straightforward, they are actually subjective and dependent on the observer's perspective. Traders have an unwritten rule to explain the premise of their view when discussing market conditions, as whether the market is in a trend or a sideways phase depends on the time frame being observed. For instance, a continuous downward trend in a one-minute cycle may appear as a consolidation phase in a five-minute cycle, and a rapid downward trend in a larger cycle. Therefore, when someone says "the market is in an upward trend, and investors should buy," it is important to understand the time frame being referenced. Otherwise, the statement may have little reference value.
In our trader communication, we typically outline the main trading timeframe and express our opinions. For instance, we might say, "Based on the recent 50 K-lines in the 5-minute timeframe, the EUR/USD exchange rate has exhibited a clear upward trend, indicating a good buying opportunity." This statement conveys the information depicted in the figure below.
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