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Trading with the trend is one of the best ways to make money in the forex markets. Most new traders try to trade against the trend or enter very late and suffer huge losses. A sound knowledge of determining a trend in its initial stage can earn you handsome profits.

Three trends of Dow Theory

According to Dow theory, a trend consists of three categories, Primary, Secondary, and Minor trends.

The primary trend

It can be as long as one year to several years and is the ‘main movement’ of the market. These movements are typically referred to as bull and bear markets. The reality of the situation is that nobody knows where and when the primary uptrend or downtrend will end.

As you can see in the image above when a currency price is moving in primary uptrend it makes new high followed by few lows not lower than the previous lows. Similarly, the same pattern follows when it is in primary downtrend.

The secondary (or intermediate) trend

This trend can last between 3 weeks to several months. Secondary movements are reactionary in nature, think of them as corrections during bull market, or rallies & recoveries in the bear market.

In a bull market, a secondary trend is considered a correction. In a bear market, secondary trend are called reaction rallies. So suppose if a currency during its primary uptrend made a high, it will retrace back to some points to make a low (knows as intermediate trend or correction). Likewise during an primary