An extended range where price is between two levels moving sideways.
A bearish trend that consists of lower lows and lower highs.
A level where price continues to bounce off of, also known as the floor. It works hand in hand with Resistance.
The study of price action and market structure to form a prediction of which direction the market will move in based on candlestick patterns and previous data.
A tool used to follow the direction of the market by linking the lower highs in a downtrend and higher lows in an uptrend.
Uptrend is a rise in price which describes the direction in which the market is heading. When price is in an uptrend you will see it make higher highs and higher lows.
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So by now we know the market moves in three directions; upwards, downwards, and sideways. When it comes to moving up and down, there’s a thing called a technical analysis tool called a trendline that helps us spot key areas where we can enter the market.
(You never stated how price needs to make higher highs & higher lows & lower highs & lower lows. That’s the main point of a trendline)
Once you’ve placed a trendline, you’re able to watch price bounce against it, this way we’re able to make sure we’re always on the right side of the trend. Now of course you can trade against the trade, which is where countertrends come into place.
When looking at a clean chart, these are the first things you need to keep in mind:
- First you identify the trend.
- Then you ride with it and try not to trade against it.
- The market tends to consolidate after a huge trend.
- Look for signs of weakness to exit, or place a different entry.
- If the pattern is strong, it should create a momentum candle through it.
NOTE: You need 3 touches of the trendline to make it a valid trendline
First let’s start with a simple UPTREND. This is where your trendline will act as support for price to bounce off of.
A DOWNTREND will use the trendline to act as support as well.
Now I know you may think that’s all for trendlines as the only other market direction we have left is sideways. There’s also a thing called COUNTER TRENDLINES. We will go more in depth in the next section on how to use them to our advantage. For now, you can use the illustration below to get an idea of what we’re about to teach you. Here the overall long-term trend is an UPTREND. However, once you start scaling down to lower timeframes, you’re able to place counter trend lines to use in your trading strategy.