Who it's for — Anyone who bought because "the price had dropped so much and it was a bargain", only to watch it drop even further. The trend tells you who is in control right now: buyers or sellers.
A Trend is the general direction in which an asset's price is moving over a specific period of time.
Like ocean waves, price does not move in a straight line. Even on a day when the tide is coming in strongly, there will be small waves retreating. The trick is to watch the entire sequence of waves, not the single drop of water.
In simple terms — "The trend is your friend". If you are swimming in a river, it is much easier, faster, and safer to swim downstream rather than exhausting all your energy trying to swim upstream.
The Two Faces of the Trend
1. Uptrend (Bullish Trend)
The market is dominated by buyers (the Bulls).
- The Mathematical Rule: An Uptrend is confirmed only if the price creates a series of Higher Highs (HH) and Higher Lows (HL).
- What it means: Every time the price takes a breather and drops (creating a low), buyers step in at a higher price than the previous low. There is urgency to buy.
2. Downtrend (Bearish Trend)
The market is dominated by sellers (the Bears).
- The Mathematical Rule: A Downtrend is confirmed only if the price creates a series of Lower Highs (LH) and Lower Lows (LL).
- What it means: Every time the price tries to bounce and rises (creating a high), sellers start unloading at a lower price than the previous high. There is urgency to sell (panic).
Break of Structure (Market Structure Shift)
How do you know a Trend is about to end? When its "mathematical rule" is violated.
If you are in an Uptrend (all lows are higher than the previous one) and suddenly the price collapses, creating a Lower Low... red alert. The spiral staircase going up has just broken. This event is called a Break of Structure or Market Structure Shift and often anticipates a reversal.
Summary Sheet
- Uptrend: Stairs going up (Highs > Highs, Lows > Lows). Look for opportunities to buy.
- Downtrend: Stairs going down (Highs < Highs, Lows < Lows). Look for opportunities to sell.
- Golden Advice: Never "bottom fish" in a downtrend. Don't try to catch a falling knife.
Bronze Path — Module 2: How price moves. Next lesson: Range. Return to index: bronze-path.
Links
- massimo-minimo — The building blocks of a trend.
- range — What happens when there is no trend.
- impulso — The violent moves in the direction of the trend.
- bronze-path
Module: Module 2 — How price moves
Be able to describe a chart without inventing forecasts.
