Trends

Trends

Uptrend

The image shown above is an uptrend.

Downtrend

The image shown here is that of an uptrend.

There are 2 types of trends. There are uptrends and downtrends.

An uptrend can be identified by a series of higher lows. Very often but not always, a series of higher highs are formed as well.

A downtrend can be identified by a series of lower highs. Very often but not always, a series of lower lows is formed as well.

Trendlines

A trendline can be drawn based on the series of peaks made or the series of bottoms made to confirm the trend. If the trendline has a positive gradient, the trend is generally upwards. If the trendline has a negative gradient, the trend is downwards.

How should option traders make use of trends?

If a trend has an upward bias, a trader can select entry points along the trend where a bullish position can be initiated. If the trend is broken, the option trader can exit the position.

On the contrary, if the trend has a downwards bias, a trader can select entry points along the trend to initiate bearish positions. If there is a reversal in the trend, the position can be exited.