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Jan 2, 2022, 7:46 PM

The Secret Pro Traders Don’t Share

By Carl Paraskevas - Chief Economist

Trending markets provide the single best opportunity to profit. Unfortunately, they can be difficult to map due to the natural ebb and flow of the market, which is a topic I discuss here in an earlier article. Whether you are a fundamental, algorithmic, or technical trader, being able to spot trends is a necessary skill to be a successful trader. Below is one indicator free method pros use to confirm if a market is genuinely trending and in what direction.

It's All About the Highs and the Lows

Upward trends are composed of a series of higher highs (HH) and higher lows (HL). Conversely, downward trends are made up of a series of lower lows (LL) and lower highs (LH). You look for the components of these series to form at the swing points: the points where price moves from impulsive to corrective and then from corrective back to impulsive.

Each series component confirms the previous. For example, in an uptrend, a HH is only confirmed by the HL that follows. Likewise in a downtrend, a LL is only confirmed by the succeeding LH. Where possible, discount the highs and lows who’s impulse and corrective moves don’t exhibit a degree of symmetry with rest.

No Highs and Lows?

If you can't map a series of HHs and HLs (uptrend) or LLs and LHs (downtrend) then you know that the market is not trending, but is rangebound or in the process of changing trend direction. Furthermore, just because the market is trending on a short time frame doesn't necessarily mean it is doing so on a longer time frame. Trending markets across higher and lower timeframes tends to signal greater confidence that the trend will persist.

Stay tuned for up and coming articles where I will discuss in greater depth on how to use the swing highs and lows of a trend to your advantage and how to precisely identify when a trend has changed.

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