Lessons › Market structure › Up, down or sideways: what a trend is

World 2 · Market structure · lesson 2 · level 1

Up, down or sideways: what a trend is

Higher highs and higher lows mean up, lower highs and lower lows mean down, and neither means sideways.

In one line

Stairs going up, stairs going down, or a flat floor. Can you tell which one price is on?

Explained simply

Think of climbing stairs, where each step is higher than the last. In an uptrend, each high and each low is higher than the one before, like steps going up. In a downtrend the steps go down, and when price just walks back and forth in the same space, it is moving sideways.

The lesson

An uptrend makes a series of higher highs and higher lows, and a downtrend makes lower highs and lower lows. When price keeps turning inside the same band, it is moving sideways, and many trend tools work poorly there. A trend is judged from the pattern of several highs and lows, not from one big candle. The same chart can trend on one timeframe and move sideways on another.

A worked example

Illustrative example: a chart's last three swing highs are 105, 112 and 118, and its last three swing lows are 98, 103 and 110. Each high is higher than the one before, and so is each low, so this is an uptrend. From the first to the third, the highs rose by 13 (118 minus 105) and the lows rose by 12 (110 minus 98).

The same idea at four levels

1. Beginner. Higher highs and higher lows mean an uptrend, lower highs and lower lows mean a downtrend, and neither means sideways.
2. Foundation. An uptrend is like stairs going up, where each dip stops higher than the last one.
3. Intermediate. Traders need several highs and lows to call a trend, because one big candle is not a pattern.
4. Advanced. A trend can be up on the daily chart while the hourly chart moves sideways, so traders always name the timeframe with the trend.
5. Expert. Trend tools work best in trends and poorly in sideways markets, so experts first decide which kind of market they are in and skip trades when it is unclear.

Mistakes to avoid

• Calling a trend from one big candle instead of the pattern of highs and lows.
• Forgetting that a chart can trend on one timeframe and move sideways on another.
• Using trend tools in a sideways market, where they often give false signals.

Goal of this lesson: Identify uptrends, downtrends and sideways markets from their highs and lows.