Level 4 · Lesson 11 of 16 · 6 min read
How to Identify a Trend: Higher Highs and Higher Lows
Is it going up, down, or sideways? One question. Infinite money saved.
Researched and written by Laurent The Definition of a Trend
Charles Dow (of the Dow Jones) gave us the most enduring definition of a trend in the late 1800s, and it still holds: a trend is a series of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend). Simple. Timeless.
The Three Market States
Uptrend
HH + HL
Buyers are in control. Each swing low is higher than the last. Trade: buy pullbacks to support.
Downtrend
LH + LL
Sellers are in control. Each swing high is lower than the last. Trade: sell rallies to resistance.
Sideways/Range
No structure
Neither side wins. Price oscillates. Trade: buy support, sell resistance, or wait for the breakout.
Trend Reversals: The Warning Signs
A trend reversal begins the moment the pattern breaks. In an uptrend, the first warning is when price makes a lower high (fails to make a new high). The confirmation comes when it makes a lower low (breaks below the last swing low).
Trade the trend, not your opinion. You might think EUR/USD "should" go down because of some news. If the chart shows HH and HL, the market disagrees with you. The chart is always more correct than your opinion.
Key Takeaways
- • An uptrend is a series of higher highs (HH) and higher lows (HL).
- • A downtrend is a series of lower highs (LH) and lower lows (LL).
- • A sideways market (range) has no directional structure.
- • Trend traders only take trades in the direction of the trend. Going against it is advanced.