Trend: swimming with the current

What a trend is

A trend is the general direction of price over a period. Price never moves in a straight line — it moves in waves: a push, a pause or pullback, another push. We define the trend by the highs and lows of those waves:

• Uptrend — each high is above the previous one (HH, higher high) and each low is above the previous one (HL, higher low).
• Downtrend — lower highs (LH) and lower lows (LL).
• Sideways (range) — highs and lows at roughly the same levels; no clear direction.

In the chart, the highs step up from $105.18 to $109.80 to $114.65, and the lows from $101.35 to $105.48 to $110.05. As long as that sequence continues, the uptrend is intact — no matter how many red candles appear in between.

Why trends persist

Trends exist because information and money take time to move. A company that beats expectations is re-rated not in a day but over weeks, as analysts update their models and funds build positions gradually. Rising prices attract attention and new buyers, while those who sold too early buy back on dips. That is why, in a healthy uptrend, each pullback finds buyers at a higher price than the last.

Timeframe matters

A stock can be in an uptrend on the weekly chart, a downtrend on the daily and sideways on the hourly — all at once. Define the trend on the timeframe you hold positions on. For investors and swing traders that is the daily chart, with the weekly as background. More in multi-timeframe analysis.

Downtrends: don't catch a falling knife

Each high is lower ($116.60 → $113.50 → $110.30), and so is each low ($110 → $106.60 → $103.20). The most common beginner mistake is buying a stock like this because "it's already down 13%, it must be cheap". In a downtrend, cheap gets cheaper. In this course a downtrend on the daily chart is a reason to wait. You buy after the structure changes — a higher low and a higher high — not on hope.

Trendlines and channels

A trendline connects at least two lows in an uptrend, or at least two highs in a downtrend. The red line above connects the falling highs: each rally stalls near it.

How to draw one properly:

1. Use clear turning points, not random wicks. Two points make a line; a third touch confirms it.
2. Don't force it. If the line cuts through many candle bodies, it isn't valid.
3. The steeper the line, the sooner it breaks. Very steep ("vertical") moves are rarely sustainable.

A channel adds a parallel line through the opposite highs (or lows).

The lower line connects the lows at $100, $103, $106 and $109; the upper line touches the highs at $105.50, $108.50 and $111.50. The channel is about $4 wide. It gives you both a buying area (near the lower line) and a profit-taking area (near the upper line). Example: price touches the lower line near $106 and a green candle closes at $107.20. Entry $107.20, stop just under the line at $105.40 (risk $1.80), first target near the upper line at $111.50 (reward $4.30, about 2.4R).