Trading Fundamentals: Up,Down and Sideways Trends (Part 2)
Here is a real life example of a Downtrend on NYMEX Crude Oil Daily Chart. This example is intended to help you identify the downtrend correctly(Same procedure goes for an uptrend). It might look confusing at first sight. However, if you start reading the chart from the left hand side and move with the price action it will make sense in no time.
Check image: ibb.co/gvwT2Q
If you start from the left hand side of the chart and move forward with the price action, you will notice the clear structure of lower highs and lower lows(Downtrend). Which was maintained for the whole period we examined until now. Note that in mid October, there was move higher beyond the prior swing high. However, for us, that wasn’t a valid breakout as the price has marginally closed above the previous high and therefore the structure of the downtrend(lower highs and lower lows) was still intact. As we mentioned earlier, for the breakout to be valid, it should be clear and noticeable. If it doesn’t scream a breakout , do not take it.
False Breakout
A false breakout is simply when a breakout below/above a support and resistance happens but fails to be sustained.
What is Sideways Trend?
When things go undefined, where a technician can’t spot any series of uniform higher highs and higher lows(uptrend). Or lower highs and lower lows(downtrend). Then it is a sideways trend.
When the highs and lows are mixed without a clear sequence, the market is said to be sideways,flat, or trend-less.. All names have the same meaning.
Here is an illustration of a sideways trend.
ibb.co/dEfXU5
In the NYMEX Crude Oil example above, there was a period where the price entered a sideways trend. It was a part of the overall downtrend. Zooming into this period between September and early November we can extract the following sideways trend example:
Check image: ibb.co/b9fXU5
Technician Tips & Tricks
Check image: ibb.co/gvwT2Q
If you start from the left hand side of the chart and move forward with the price action, you will notice the clear structure of lower highs and lower lows(Downtrend). Which was maintained for the whole period we examined until now. Note that in mid October, there was move higher beyond the prior swing high. However, for us, that wasn’t a valid breakout as the price has marginally closed above the previous high and therefore the structure of the downtrend(lower highs and lower lows) was still intact. As we mentioned earlier, for the breakout to be valid, it should be clear and noticeable. If it doesn’t scream a breakout , do not take it.
False Breakout
A false breakout is simply when a breakout below/above a support and resistance happens but fails to be sustained.
What is Sideways Trend?
When things go undefined, where a technician can’t spot any series of uniform higher highs and higher lows(uptrend). Or lower highs and lower lows(downtrend). Then it is a sideways trend.
When the highs and lows are mixed without a clear sequence, the market is said to be sideways,flat, or trend-less.. All names have the same meaning.
Here is an illustration of a sideways trend.
ibb.co/dEfXU5
In the NYMEX Crude Oil example above, there was a period where the price entered a sideways trend. It was a part of the overall downtrend. Zooming into this period between September and early November we can extract the following sideways trend example:
Check image: ibb.co/b9fXU5
Technician Tips & Tricks
- A trend is a dominant theme, trading in the direction of the dominant trend increase the chances of success.
- The highs and lows that a trend establishes while forming are called Support and Resistance levels.
- Buying near support and selling near resistance is the most appropriate trading technique in a sideways trending market.
- In sideways trends, it is common to witness false breakouts above or below the sideways range.
- In a strong uptrend or downtrend, pullbacks are shallow and short lived. Therefore, traders can be more aggressive trading in the direction of the trend.