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What Is a Trending Market?

A trending market is one where the price moves consistently in a single direction—either up or down—over a period of time. While there may be occasional pullbacks or retracements, the overall trend direction remains clear when viewed on a higher timeframe.

Identifying Trends

In technical terms:

An uptrend is marked by higher highs (HH) and higher lows (HL).
A downtrend is identified by lower highs (LH) and lower lows (LL).

Understanding these patterns is crucial, especially when using trend-based trading strategies.

Trending markets offer more predictable price action and better trading opportunities. Major currency pairs (like EUR/USD, GBP/USD, or USD/JPY) are preferred by trend traders due to their high liquidity. Liquid pairs tend to show stronger directional movements, making trends more pronounced and reliable.

Let’s explore three technical indicators that help traders confirm the presence of a trend:

1. Average Directional Index (ADX)

The ADX, developed by J. Welles Wilder, measures trend strength on a scale from 0 to 100:

ADX above 25 indicates a trending market.
The higher the ADX, the stronger the trend.
Note: ADX is non-directional and lagging, meaning it shows strength but not the direction (up or down).

Example:
Even if ADX is above 25, the price could be trending either up or down—you must pair ADX with other tools for clarity.

2. Simple Moving Averages (SMAs)

SMAs help confirm trend direction and strength:

Setup:

Add three SMAs: 7-period, 20-period, and 65-period.

Interpretation:

If the 7 SMA is above the 20 SMA, and the 20 SMA is above the 65 SMA → Uptrend
If the 7 SMA is below the 20 SMA, and the 20 SMA is below the 65 SMA → Downtrend

Bonus Tip:
Watch for the SMAs to first compress together, then fan out—this usually signals the beginning of a new trend.

3. Bollinger Bands

Though often used in range trading, Bollinger Bands can also identify the start of a trend.

Setup:

Plot two sets of Bollinger Bands: one with a 1 standard deviation (SD) and another with 2 SD.

Zones:

Buy Zone: Price closes between the upper 1SD and 2SD bands.
Sell Zone: Price closes between the lower 1SD and 2SD bands.
No Man’s Land: Price is within the 1SD bands — direction is unclear.

If the price repeatedly closes in the buy or sell zone, it signals a valid trend.

Final Thoughts

Trends don’t occur all the time—markets range around 70–80% of the time. But when a trend forms, it presents a high-probability opportunity for traders.

Key Takeaway: