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Trend and the key levels

Trends and direction

A trend is defined by structure: higher highs and higher lows for an uptrend, the reverse for a downtrend, roughly flat for a range. Trade with the trend, but know it ends and depends on the timeframe.

8 min readChapter 6 of 26
What you will learn
  • Define uptrend, downtrend, and sideways using highs and lows
  • Explain trading with the trend honestly
  • Understand that trends end and depend on the timeframe

The first thing a technical trader does with any chart is name the trend. Not the pattern, not the indicator, the trend. Almost every tool in this course works with the direction of the market and fails against it, so naming that direction comes first. The old line that the trend is your friend is a cliche precisely because it is largely true.

A trend has a structure

The three directions: an uptrend of higher highs and lows, a downtrend of lower highs and lows, and a sideways range.
The three directions: an uptrend of higher highs and lows, a downtrend of lower highs and lows, and a sideways range.

A trend is not a feeling about a chart. It has a definition you can point to, built from the swing highs and swing lows that price leaves behind.

An uptrend is a series of higher highs and higher lows: each peak is higher than the last, and each dip bottoms out higher than the one before. A downtrend is the mirror, lower highs and lower lows, each rally failing sooner and each fall going deeper. A sideways market, also called a range, makes roughly equal highs and lows, drifting without a clear direction.

This structure is what makes a trend objective. Instead of squinting and guessing, you mark the recent swing points and ask a plain question: are the highs and lows stepping up, stepping down, or going flat.

Trends exist for the reason the first chapter gave: crowd behaviour. A rising price draws in more buyers, which lifts it further, and momentum feeds on itself for a while. This is why trading with the trend is higher-odds than fighting it. Buying in an uptrend, or standing aside in a downtrend, puts the market's own momentum on your side, while trying to pick the exact top or bottom sets you against it.

But respect the honest limit. Trends end. The fuller version of the cliche is that the trend is your friend until it bends, and the structure tells you when it is bending: an uptrend that suddenly makes a lower high and a lower low is losing its shape.

And always ask on which timeframe. A stock can be in an uptrend on the weekly chart and a downtrend on the hourly, both true at once. The trend that matters is the one on the timeframe you are trading, read with the higher timeframe for context, which a later chapter builds into a method.

What to carry forward

A trend is not a vague impression but a structure you can read off the swing points: higher highs and higher lows mean up, lower highs and lower lows mean down, and roughly equal ones mean a range. Trends exist because crowds chase momentum, which is why trading with the trend beats fighting it, and the same structure warns you when a trend is bending. Always name the trend on the timeframe you trade, and hold it loosely, because it is clearest after it has already happened.

A trend is a concept until you draw it. The next chapter puts a line on it, with trendlines and channels.