[Very Important!] What is the definition of "trend" and how is it judged? Technical Analysis Basic Course #6
Hello! I am SAKU!
This time, I will delve into and discuss something indispensable in trading that you cannot do without—the trend.
Previous article on Dow Theoryalso touched on the term here and there, butthe definition of the trend and how to judge the trendare extremely important in technical analysis, so please make sure you grasp this content well!
What is a trend
Trend (Trend) ... literally translated, it means tendency, direction, or current.
In price movements, this trend also occurs.
In short, during an uptrend more people are buying, and during a downtrend more people are selling.
Trends in Dow Theory
・Uptrend and downtrend …According to Dow Theory,higher highs and higher lowsare confirmed,uptrendis determined,lower highs and lower lowsare confirmed,downtrendis determined.
In other words, if you cannot confirm higher highs and higher lows, a trend has not formed → range market or no-trend can be said.
・Range market ... a market condition where price movements fluctuate within a fixed range.
Also called a consolidating market or box range. (The range market in the figure below is technically a rectangular formation.)
・No-trend market ... a market where no trend is present and price movement is irregular. It is often equated with a range market.
Generally, it is said that trends account for about 30%, while range and no-trend markets account for about 70% of total.
※ More strictly, in Dow Theory, there is no such thing as a “range market” or “no-trend.” The idea is that always some form of trend exists. In other words, common range or no-trend states are just movements within a trend. However, for convenience here, we will describe them as range or no-trend states to distinguish from rising or falling trends.
Trend continuation, termination, and reversal
・Support low and pullback high
Higher highs and higher lows—you might wonder what criteria to use.
Thus, as one standard of price movement, there is the concept of push-low, pullback high.
To put it in words, the price wave that updates the most recent high is called push-low, and the price wave that updates the most recent low is called pullback high.
・Continuation of the trend
If push-low keeps being updated, it indicates an uptrend,, if pullback high keeps being updated, it indicates a downtrend.
Because push-low moves as the most recent high is updated, you can think of push-low movement as the continuation of the trend (the opposite applies to pullback high).
・Trend termination
(In an uptrend)If push-low is breached below, it is the first sign that the previous uptrend has ended.
「Termination of the trend」
・Confusing patterns
In the red circled part of the figure, it is not a downtrend but a corrective decline. Overall, the trend is still up.
・Trend reversal
In an uptrend, I explained that if you breach the push-low, the uptrend ends for the time being, but that does not mean the trend has reversed.
Put differently, the uptrend has ended, but it is not yet a downtrend.
So what condition would cause a trend to reverse?
Think back to this: we determine an uptrend by confirming higher highs and higher lows, and determine a downtrend by confirming lower highs and lower lows..
For the uptrend to end and a downtrend to begin,
① breach push-low → ② lower lows and lower highs formation is necessary.
Please look at the figure below.
Therefore,breaching push-low does not immediately mean a downtrend!
If you short thinking the downtrend has started, you may still see the price move up again or chop sideways for a while before a real downtrend develops.
Of course, if you are aware of this and short with the expectation of a downtrend, that is fine, but in that case, set stop-loss and adjust lot size so you can exit quickly if things go wrong.
So far we have looked at trend continuation, termination, and reversal in Dow Theory. How was it?
For beginners it may be hard to understand in one sitting, so reread several times and practice on your own charts.
This part is highly important in any analytical method,so make sure you internalize it and practice until you can judge from charts right away.
Summary
Finally, I have summarized the flow in a diagram for your reference.
・Explanation in chronological order
① breach high A upward → confirm push-low A’
② breach high B upward → push-low moves to B’ (trend continuation)
③ breach push-low B downward → confirm pullback high C (uptrend ended)
④ breach low D downward → pullback high moves to D’ (downtrend occurs = trend reversal)
For more details on the author's trading method, see below
The Essence of MTF Multitimeframe Analysis(Discount until August 31, 2026, 23:59)