Highs & Lows – trend recognition

Highs & Lows issue is in the first place of our list but not without reason. It’s actually not a pattern but  characteristic points on the graph, which proper interpretation will allow you to gain mystery of the problem, which only superficially seems trivial – recognition of the trend.

As you probably know, there are three possible scenarios of currency price movement: uptrend (1), horizontal trend (2) or downtrend (3). Each is presented below:

But what exactly determines which trend are we facing? Look again for the same figure but this time with the highs and lows marked on the price chart.

As you probably noticed in each trend, highs (blue dots) and lows (red dots) are arranged in a characteristic manner for each of the trends. In an uptrend, they appear higher and higher, in horizontal trend they move towards a common point (they can move away from each other or create one or two perpendicular lines as well), and in a  downtrend each high and low appears lower than previous. It looks simple, but when you add a problem of time interval, in which you examine the trend, things can get messy.  That is beacause every major trend consists of a specified number of smaller trends, what you can clearly see on the graph below:

The main problem of recognizing the market sentiment is the time interval, in which we examine the trend. We can see a strong uptrend on a H1 chart, but when we switch to D1 or even H4, the situation may change entirly and it will turn out that our strong H1 uptrend was only a small pullback of a much bigger move. How to handle this problem? Try to open position when you see that trends on different time intervals have the same direction. It may sound simple but in practice you will find out that by the time you realize that trends on H1, H4 and D1 are the same, the lowest timeframe trend had allready exhausted. This is adifficult issue but with some experience it’s possible to find those “magic” turnpoints, wich will allow you to enter the market when trends on a different time intervals are synchronized. I hope that patterns described on this site will help you with that.

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