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What is an Uptrend? (Simplified)

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You may already guess what does an uptrend mean. It is the type of trend where the general market movement is upward.

How to recognize an uptrend?

You can use different tools to determine the type of trend. We will try to explain you without using any of them, just by showing you through an example.

Whoever you ask on the street, where the line is going, the answer will always be the same. It is evident that the price is pointing upward and that we are in the uptrend. 

Now, when it is clear that we have an example of an uptrend, let’s try to make an analysis and to point out some of the characteristics of this price movement so we can use them to identify uptrends.

What are characteristics of an uptrend?

Uptrend started on Monday with high on Tuesday.

Next day, we saw a decline in the price creating first low of this uptrend.

On Thursday we saw up momentum again that caused creating a new high.

After new high was reached we saw down momentum again which resulted in creating second low of this uptrend.

After we saw forming a second low, we saw up action again which reached a new high. 

This should be clear to everyone.

Now, what should be clear too is that uptrend doesn’t mean straight line up.

On this example, we saw that uptrend has several down movements.

The first characteristic of an uptrend is that while the general price movement is upward, it doesn’t exclude short-term periods where the price will trend down.

Next important characteristic of an uptrend is creating higher highs and higher lows.

As shown on example, we saw that the high that was established on Thursday was higher than the high from Tuesday.

Also, on Friday we saw the creation of a new low that was higher than the low made on Wednesday.

This is the main characteristic that is used to identify an uptrend.

If the price is creating higher highs and higher lows, we are in the uptrend.

Now, when we saw an example of an uptrend and pointed out two main characteristics of an uptrend, it is time to show you some chart where we could spot an uptrend.

On a daily chart of the US dollar/ Canadian dollar, we can see an almost perfect example of higher highs, higher lows structure.

Once you spot this kind of formation, your eyes should be looking for a buying opportunity.