The trend is considered in place until price is no longer making higher highs and higher lows in an uptrend or lower highs and lower lows in a downtrend. After a trend is broken, there is usually a period of consolidation that is easier to see on a lower time frame. With practice, you will be able to visualize this going on without looking at the lower time frame.
Market Phases with HH,HL,LL,LH?
Contrary to popular belief there are actually three ways the market can go;
With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows. In short
The market is going up when price is making higher highs and higher lows
The market is going down when price is making lower highs and lower lows
The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows
This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is it a market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade. What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).
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