a chain of higher highs and higher lows. An uptrend is a price movement in which a financial instrument, commodity, index, or the like goes up.
How Uptrend Works
You can say that a financial instrument is experiencing an uptrend if there is an upward spike in the price of that asset. Most people interpret a trend as a general direction that the market is going in. In comparison, a trend is a specific pattern of price movements. For instance, if the price rises steadily with no dips, this indicates the uptrend.
When the price rises in a rising diagonal pattern and then falls at the same rate, it has an uptrend. The price movement continues to the upside until it cannot break through a resistance level, and then it drops. The price then rebounds and continues to rise. This is the uptrend.
Some traders prefer to trade only when the market is on an uptrend because they are looking for lucrative entry points into the market. Buyers are patiently waiting to purchase the asset at a price below its current value. Meanwhile, sellers are patiently waiting to sell the asset at a price above its current value. When an asset fails to create higher highs and lows, it may be either:
- in the process of producing a downtrend
- the asset is fluctuating
- the price action is choppy
This makes it difficult to establish the trend direction. Uptrend traders may decide to take a break until a clear uptrend emerges.
Real World Example of Uptrend
A good example of an uptrend is the price of Dogecoin, where it has continuously risen since it entered the crypto market.
The price of the digital currency based on the popular internet meme surged to new highs in early 2021, outpacing Bitcoin's growth rates. Following comments from Tesla CEO Elon Musk, the value of Dogecoin increased by approximately 216% between January 28 and January 29 to 0.023535 US dollars.
The digital coin grew rapidly to become the most talked-about cryptocurrency available, not because of its price—the prices of Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and several other virtual currencies were much higher than that of DOGE—but because of its uptrend.
Uptrend vs. Downtrend
A downtrend is the direct opposite of an uptrend. It occurs when the price of a stock begins to fall or moves lower. The downtrend is defined in the same way as the uptrend but in the opposite direction. As the trend continues, the peaks and troughs in the chart decrease.
The difference between uptrend and downtrend is visible. Uptrends give traders the chance to buy low, sell high, and hopefully keep profiting until the trend returns. Traders usually sell stocks when they do not break new peaks and trunks more.
If you're a long-term trader, you will not profit from downtrends, but short-term investors will. Short-term trading works by borrowing and quickly selling shares. The idea is that as the price of the shares continues to fall, you can repurchase them at a lower price and make a profit from the difference.