Trends: the walk of price
Reading Charts

Trends: the walk of price

7 cards and 4 quick questions. About 2 min.

The lesson in full

  1. Prices never move in straight lines. They zigzag. A trend is the general direction of those zigzags.

  2. Uptrend: each peak is higher than the last, and each dip stops higher than the last. Higher highs, higher lows.

  3. Downtrend: lower highs and lower lows. Every bounce fails below the last one. Sellers are in charge.

  4. Sideways: price bounces between a floor and a ceiling. Neither side is winning, and markets spend a lot of time like this.

  5. Real example: from March 2009 to early 2020, the S&P 500 kept making higher highs and higher lows, climbing from under 800 to over 3,000.

  6. Common mistake

    Mistake: calling a new trend from one big candle. One candle is a moment; a trend needs a series of higher (or lower) peaks and dips.

  7. Key takeaway

    Up: higher highs and higher lows. Down: lower highs and lower lows. Neither: sideways. Read the trend before anything else.

Quick check

  1. Higher highs and higher lows is called... An uptrendPeaks and dips that each stop higher than the last: that's an uptrend by definition.
  2. In a sideways market... Buyers and sellers are evenly matchedPrice bounces between a floor and a ceiling because neither side can win.
  3. Why zoom out on a chart? To see the bigger trendA dip on a short chart can sit inside a big uptrend you only see when you zoom out.
  4. One huge green candle appears in a downtrend. What does it prove? Not much: one candle isn't a trendTrends are a series of peaks and dips. One candle can't make that series alone.

Words in this lesson

Reading Charts

  1. What is a candle, really?
  2. Line, bar and candle charts
  3. Trends: the walk of price
  4. Floors and ceilings
  5. Breakouts and fakeouts
  6. Timeframes: zoom in, zoom out
  7. Three candle patterns worth knowing
  8. Moving averages
  9. Momentum and the RSI
  10. Volume: how many voted
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