Trend and market structure

Price moves in waves. The peaks are swing highs and the dips are swing lows, and marking them is the first step to reading any trend.

Line up the swing highs and swing lows and the market is doing one of three things. Higher highs and higher lows make an uptrend, lower highs and lower lows make a downtrend, and level highs and lows make a range.

A trendline joins the swing lows of an uptrend, or the swing highs of a downtrend. Two points draw it, a third touch confirms it, and a close through it ends it. A channel adds a parallel line on the other side.

Use a higher timeframe to decide the direction and a lower one to time the entry. Each step down should be about 4 to 6 times shorter, such as D1, then H4, then H1.

Every trend pulls back. A pullback that holds above the last higher low is still an uptrend; a close below it is a break of structure, the first hard sign the trend may be over.

Ranges are full of short runs of higher lows and higher highs that look like trends. Three real losing setups, on EURUSD, USDJPY and gold, show how it goes wrong and what to check before you call a trend.