As a result, any trend can be decomposed into several stages. Each stage will have its own maximum and minimum value. If the trend goes up, then each maximum value will be greater than the previous one. Similarly for a downtrend, where each low updates the previous low.
According to the Dow theory, there are 3 types of trends:
3) insignificant (small).
The main trend is a key market movement. To determine it, you need to open a larger timeframe on the chart, say, monthly or weekly. This global trend ultimately affects everything, including secondary and insignificant trends. According to the Dow theory, the global trend lasts 1-3 years, which, however, can change.
The main trend remains valid until there are clear indications of its completion. One of such indications may be, for example, closing the price below the .
Secondary trend, as a rule, goes against the main trend or acts as a correction to it. This is how the main trend can go up, and secondary trends - down.
According to the Dow theory, secondary trends last from 3 weeks to 3 months, and the rollback against the main trend lasts from 30 to 60% of its movement. Also, the secondary trend is usually much more volatile than the main one.
All these values are conditional, depending on the characteristics of the trading instrument itself.
Minor trend (small). In theory, this is a market movement lasting up to several weeks. As a rule, it is a correction to a secondary trend. In reality, the duration of the trend depends on the trading instrument in question
A trend has three phases. According to the Dow theory, each trend has 3 key phases:
1) phase of accumulation (distribution).
2) the phase of public participation.
3) phase of panic (realization).
This is the first phase, the beginning of an uptrend. It is at this stage that traders and investors enter the market, which can rightly be called professional. They have the greatest amount of information (often internal - insiders) about the current state of the market and the first to begin active actions. Other market participants do not realize at this time the state and direction of the market.
Typically, this phase begins at the end of the downtrend. At this point, most of the negative news has already been taken into account by the market, due to which investors, despite low prices, begin to see an asset in the future.
Of course, detecting the accumulation phase is not so simple. Often it goes after a downtrend. And it, in turn, can be just a minor trend in the general downtrend. As a result, instead of a new trend, only a temporary pullback is obtained. From a technical point of view, the beginning of a new trend is always accompanied by a period of consolidation. This is when the market moves sideways and then begins to show an uptrend.
The phase of public participation.
Participation phase Advanced investors and traders enter the market during the accumulation phase. In their opinion, the worst is over. When the trend really unfolds, the stage of public participation begins. Economic data are improving, the market is full of good news. The more such news, the more market participants connected in this phase. This phase is the longest of all, it is also characterized by the most active movement. Highs are constantly updated - exactly what investors were waiting for.
The phase of panic (implementation).
This is the phase where experienced traders and investors exit the market, while less experienced traders enter the market. As a result, such investors and traders are excited to buy at the peak of the trend, shortly before its spectacular fall. The same phase is a reversal phase - professional investors and traders understand that the market has exhausted itself and begin to close their positions opened in the first phase.
To determine this phase, you need to carefully study the signs that the market growth is complete. Moreover, the more active the market growth, the stronger the subsequent decline will be.
A similar story when the main trend is and goes down. The situation is mirrored, and at the implementation stage, a real panic is often formed, when many inexperienced investors and traders dump their assets and the price receives the last downward momentum before growth.