Free Trading School · Level 4: Reading Charts
Trends: higher highs and lower lows
Markets move in waves, not straight lines. An uptrend is a series of higher highs and higher lows: each rally goes further than the last and each pullback stops above the previous one. A downtrend is the mirror image: lower highs and lower lows.
An uptrend: each high (HH) and each low (HL) is higher than the one before.
When price stops making new highs and lows and moves sideways between two levels, the market is in a range. Some strategies are built for trends, others for ranges, so identifying which one you are in comes first.
- The trend is broken when price makes a lower low in an uptrend (or a higher high in a downtrend).
- Moving averages, such as the 50-day, help you see the trend at a glance.
- Trading in the direction of the trend usually gives you the wind at your back.
Identify the trend first: up, down or sideways. Then pick a strategy designed for that environment.
Quick answers
Markets move in waves, not straight lines. An uptrend is a series of higher highs and higher lows: each rally goes further than the last and each pullback stops above the previous one. A downtrend is the mirror image: lower highs and lower lows.
Identify the trend first: up, down or sideways. Then pick a strategy designed for that environment.
Becomes support. Old resistance often acts as new support: a role reversal.
Next lesson: Support and resistance