Trend

We always trade in the direction of the trend and the trend is our friend. One who trades against the trend is bound to lose a lot more than what they will make. We cannot stress this point enough. The most successful traders are the ones who only trade in the same direction as the trend Markets can only move in three directions; up, down or sideways.

When a sequence of candlesticks moves upwards, they will generally do this in a whipsaw fashion, creating a series of higher highs and higher lows (HH/HL) as in the example below.

 Up trend example

These higher highs and higher lows are known as peaks and troughs, and they give us our points of support and resistance. If the market is making HH’s and HL’s, this constitutes an up trending market. An up trending market is also referred to as a bullish market. Dips in an up trending market occur due to profit takers.

A down trending market is a market which is making lower highs and lower lows (LH/LL). Once again these peaks and troughs create our support and resistance levels. A down trending market is also known as a bearish market. See the example below.

 Down trend example

The last direction a market can take is sideways, also known as a congested market. In a congested market, neither the buyers nor the sellers are winning. We do not trade a congested market. The example below shows a sideways market that has been channelling.

 Sideways trend example