Track 1 · Lesson 4 · 7 min
Trends, tops and bottoms
Higher highs, lower lows, support, resistance and moving averages, on real charts you control.
Prices zigzag. A trend is the direction of the zigzag. In an uptrend each swing high is higher than the last and each swing low is higher too: higher highs and higher lows. A downtrend makes lower highs and lower lows. When the swings go nowhere, the price is in a range.
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Find the swings
Swing points are marked where the price reversed by at least the swing size. HH = higher high, HL = higher low, LH = lower high, LL = lower low.
Support and resistance. Old swing lows often act as support, where buyers stepped in before. Old swing highs act as resistance, where sellers did. When price escapes a range, traders call it a breakout; the breakouts lesson covers the plays built on it.
Checkpoint
A stock has made swing highs of $50, $55 and $53, and swing lows of $40, $45 and $42. What is the latest pattern?
$53 is below $55 (a lower high) and $42 below $45 (a lower low). The uptrend has broken.
Moving averages smooth the zigzag into one line: the average close of the last N days. Price above a rising average is the simplest definition of an uptrend, and it's the core of many plays.
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Moving-average playground
Shading marks days a simple rule would be in: in when the close is above the average, out when below. Before costs and with no interest while out.
Tops and bottoms are only obvious afterwards. In real time, every dip might be the start of a fall, and every bounce the start of a rally. That's why trend rules wait for confirmation, such as a close below the average, and accept selling below the top. The price of that patience is lag; the reward is not being shaken out by every pullback. Next in the plays track: moving averages, explained.
Check yourself