Before any strategy, indicator, or pattern, there's one question every trader should answer first: which way is the market moving? That's the trend. Read it correctly and everything else on the chart makes more sense. There are only three answers.
The three states of a market
At any moment, price is doing one of three things:
- Uptrend — moving generally higher.
- Downtrend — moving generally lower.
- Sideways (range) — moving mostly flat, with no clear direction.
The trick is that price never moves in a straight line. It zig-zags. Reading the trend means looking past the zig-zags to the overall direction of the swings.
How to identify an uptrend
An uptrend is a staircase of rising swings. Specifically, you look for:
- Higher highs — each peak is higher than the last.
- Higher lows — each pullback bottoms out above the previous one.
As long as price keeps carving higher highs and higher lows, buyers are in control and the uptrend is intact. Traders often say "the trend is your friend" — trading with an uptrend is usually easier than fighting it.
How to identify a downtrend
A downtrend is the mirror image:
- Lower highs — each rally stops short of the previous peak.
- Lower lows — each drop pushes below the last bottom.
Lower highs and lower lows mean sellers are in control. In a downtrend, brief bounces are often just pauses before the next leg down.
Note
Simple test: connect the swing highs and swing lows. Both sloping up = uptrend. Both sloping down = downtrend. Roughly flat = sideways.
How to spot a sideways market
Sometimes price gets stuck bouncing between a floor (support) and a ceiling (resistance) without making meaningful new highs or lows. This is a range or sideways market — buyers and sellers are evenly matched.
Ranges are common; markets spend a lot of time going nowhere. Many trend-based tools (like moving averages) work poorly here, producing false signals, so recognising a range keeps you from forcing trades that aren't there.
Trends come in different sizes
A market can be trending up on the weekly chart while pulling back in a short-term downtrend on the hourly chart. That's normal. The lesson: always know which timeframe you're reading. Zooming out shows the bigger trend; zooming in shows the smaller swings inside it. Confusing the two is a classic beginner mistake.
Risk
A trend continues until it doesn't. No trend lasts forever, and reversals catch traders who assume it will. Always use a stop loss to protect against the turn.
Why the trend comes first
Identifying the trend shapes every decision that follows. It tells you which direction to favour, where support and resistance are likely to matter, and whether trend-following tools even apply. Trade with the dominant trend and the odds tilt your way; trade against it and you're swimming upstream.
How to practise reading trends
- Open a daily chart of a major pair like EUR/USD.
- Mark the recent swing highs and swing lows.
- Decide: higher highs/lows, lower highs/lows, or flat?
- Do the same on a shorter timeframe and notice how the trends can differ.
- Practise on a demo account so you can test your reads with no money at risk.
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The bottom line
Every chart is in an uptrend, a downtrend, or a sideways range. Uptrends make higher highs and higher lows; downtrends make lower highs and lower lows; ranges bounce between support and resistance. Learn to name the trend — and the timeframe you're reading it on — and you've built the foundation every other trading skill sits on.
Educational content only, not financial advice. Trading forex carries a high level of risk. Read our full affiliate disclosure.