Trends
Why this matters
"The trend is your friend" is cliché because it's true. Trading with the trend means aligning with the majority of order flow. Fighting it means swimming upstream.
Before you look for entries, you need to answer one question: is price trending up, trending down, or going nowhere?
Three Market States
Price is always in one of three conditions. Recognizing which one you're in shapes every decision you make.
- Uptrend: price makes higher highs and higher lows
- Downtrend: price makes lower highs and lower lows
- Range: price bounces between a ceiling and a floor
Uptrend, Downtrend, Range
Three simplified price paths showing the defining structure of each market state.
Uptrend: Higher Highs & Higher Lows
An uptrend forms when each peak (swing high) is higher than the last, and each trough (swing low) is also higher than the last.
This tells you buyers are in control. They're willing to pay more each time price pulls back, and they push price to new highs on each push.
- Higher High (HH): new peak above the previous peak
- Higher Low (HL): pullback low stays above the previous low
- Buy dips in uptrends, don't short the highs blindly
Higher Highs & Higher Lows
Each swing high exceeds the prior high. Each pullback low holds above the prior low.
Downtrend: Lower Highs & Lower Lows
A downtrend is the mirror image. Each rally peaks lower than the last (lower high), and each selloff breaks below the previous low (lower low).
Sellers dominate. Rallies are sold into, and support levels keep breaking.
- Lower High (LH): rally fails below the previous peak
- Lower Low (LL): new low below the previous trough
- Sell rallies in downtrends, don't buy dips blindly
Range: Going Sideways
When price can't make new highs or new lows, it's ranging. Price oscillates between support (floor) and resistance (ceiling).
Ranges are common after strong trends exhaust themselves. They can last hours, days, or weeks. Many traders lose money forcing trend strategies in ranges.
- Equal-ish highs and lows define the boundaries
- Breakouts from ranges can start new trends
- Mean-reversion strategies work better in ranges
Range-Bound Price
Price ping-pongs between horizontal support and resistance with no clear direction.
When Trends Change
Trends don't last forever. An uptrend ends when price makes a lower low, breaking the sequence of higher lows. That's often the first warning sign.
Similarly, a downtrend may be ending when price prints a higher high. Wait for confirmation: one break in structure isn't always a full reversal.
- Uptrend breaks on a lower low (LL)
- Downtrend breaks on a higher high (HH)
- Ranges resolve with a breakout above or below
Key Takeaways
Remember these points
- •Markets trend up, down, or sideways. Identify which before trading.
- •Uptrend = higher highs + higher lows. Downtrend = lower highs + lower lows.
- •Ranges have defined ceilings and floors; trend strategies fail here.
- •Structure breaks (LL in uptrend, HH in downtrend) signal potential reversals.
- •Trade with the trend until structure tells you it's over.
Common Mistakes
Calling every pullback a trend reversal
A single lower low in a strong uptrend might just be a deep pullback. Wait for confirmation before flipping bias.
Trend trading in a range
Buying breakouts that immediately reverse is the #1 range mistake. Recognize chop and adjust strategy.
Using too short a timeframe to define trend
A "downtrend" on the 5m might be a pullback in a daily uptrend. Check higher timeframes.
Quiz
0/4 answered1.An uptrend is defined by:
2.A lower low in an established uptrend suggests:
3.In a range-bound market, price:
4.Lower highs in a downtrend mean:
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