Trading Price Action Trends

Part III

Trends

Atrend is a series of price changes that are mostly either up (a bull trend or a bull) or down (a bear trend or a bear). This is very important when it comes to trading because a trader usually should not be looking to buy unless the market is at least forming a higher low and should not be looking to short unless the market is at least forming a lower high. A trend can be as short as a single bar (remember, a trend bar is made up of a trend on a smaller time frame) or longer than all of the bars on your screen. Trends can be loosely classified into four overlapping and often interchangeable categories: trend, swing, pullback, and leg. The distinctions are just guidelines because each of the three smaller versions is a different version on different time frames. For example, a pullback in a bull trend on a 60 minute chart might be a strong bear trend on a 1 minute chart. Also, each category will contain one or more of the smaller versions. A trend might be made of 10 swings, each containing one to four pullbacks, and each pullback might have one to four legs. Every upswing and downswing of any size is commonly referred to as a leg, so the distinctions are not very important, but each term carries a subtle distinction with it.

At its simplest, a trend is present when the chart on your computer screen starts at one of the two left-hand corners and ends at the diagonally opposite corner of the screen without huge fluctuations in between. For example, if the bars on ...