What Is a Trending Market?
A trending market is one where the price consistently moves in one general direction—either up or down.
While price fluctuations against the trend can occur (called retracements), the overall direction becomes clear when viewed on longer time frames.
Identifying Trends
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In an uptrend, you’ll see a pattern of higher highs and higher lows.
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In a downtrend, you’ll notice lower highs and lower lows.
Trend-following traders often focus on major currency pairs, especially those involving the U.S. dollar, because these pairs tend to be more liquid and show stronger trends.
Why is liquidity important?
Because liquid pairs tend to be more volatile, offering better opportunities for price to move clearly in one direction, rather than choppy sideways action.
How to Know If the Market Is Trending
Besides just observing price action, traders often use technical indicators to confirm whether a market is trending.
1. ADX (Average Directional Index)
The ADX, developed by J. Welles Wilder, helps measure the strength of a trend, regardless of direction.
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It ranges from 0 to 100.
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Values above 25 usually indicate a strong trend.
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The higher the value, the stronger the trend.
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Important: ADX is a lagging and non-directional indicator. It tells you if a trend exists but not whether it's up or down.
Example: If the ADX is above 25 and price is falling, you're likely in a downtrend, even though ADX doesn’t say that directly.
2. Simple Moving Averages (SMAs)
Not a fan of ADX? You can use SMAs instead.
Try this setup:
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Add 7-period, 20-period, and 65-period SMAs to your chart.
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Wait for them to compress and fan out.
In an uptrend:
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7 SMA is above 20 SMA
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20 SMA is above 65 SMA
In a downtrend:
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7 SMA is below 20 SMA
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20 SMA is below 65 SMA
This alignment shows a clear directional move.
3. Bollinger Bands
Although Bollinger Bands are often used for range trading, they can also reveal trends.
Here’s a fun fact: Markets range about 70–80% of the time. So when prices break out strongly, they’re likely trending.
To spot a trend:
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Add two sets of Bollinger Bands:
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One with a 1 standard deviation (SD)
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One with a 2 standard deviation (SD)
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This gives you three zones:
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Sell Zone (between the two lower bands of 1SD and 2SD)
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Buy Zone (between the two upper bands of 1SD and 2SD)
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No Man’s Land (the middle area between upper and lower bands)
For a valid signal, the price must close within the buy or sell zone.
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Downtrend: Price closes in the sell zone
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Uptrend: Price closes in the buy zone
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Unclear trend: Price is in No Man’s Land
This visual setup can help confirm whether a trend is in play.
In Summary
To spot a trending market:
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Look for higher highs/lows or lower highs/lows
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Use indicators like ADX, SMAs, or Bollinger Bands
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Focus on liquid currency pairs for better trending opportunities