The following Alibaba Group chart shows several examples of how trends can be analyzed, as well as some examples of potential trades using chart patterns and the trend.
The price starts out in a downtrend, before rising through the descending trendline and above the moving average. This doesn’t mean the trend is up, though. Trend traders will typically wait for the price to also make a higher swing high and a higher swing low before considering the trend up.
The price continues to move higher, confirming the new uptrend. It then pulls back and starts to rise again, forming the first chart pattern. The price breaks higher out of the chart pattern, signaling a potential long position.
The uptrend continues aggressively, forming two additional chart patterns along the way. These both offered opportunities to enter a long position or add to an existing one (called pyramiding).
The price continues to rise, but then starts giving warning signs. The price drops below the moving average for the first time in a long while. It also creates a lower swing low and breaks through a short-term rising trendline.
The price makes a new high after that, but then drops below the moving average again. This is not strong uptrend behavior, and trend traders would typically avoid going long during conditions like this. They would also be looking to exit any remaining longs they may have.
The chart shows that the price continues to oscillate around the moving average, with no clear trend direction. Finally, the price slides into a downtrend. Trend traders would be out of longs and avoiding new ones, and possibly looking for spots to enter short positions.