The trend is your friend until it bends. While beginners jump on every setup they see, professionals ask one question first: "What's the trend?" Trading with the trend gives you the current of institutional money. Trading against it makes you the liquidity they hunt. This lesson teaches you to read the market's direction before you risk a single dollar.
Welcome to Lesson 2
You understand price action and key levels. But here's the reality check:
Knowing WHERE to trade means nothing if you don't know WHICH DIRECTION to trade.
The Professional Difference: Retail traders take every setup that "looks good." Professional traders only trade setups that align with the higher timeframe trend. They identify the trend on Daily/H4 first, then look for entries on H1/M15 in the SAME direction. Trading with the trend increases win rate by 20-30%.
Lesson Chapters
1Chapter 1: The Three Market Trends⏱️ ~2 min
The market is cyclical—it spends time going up, down, and sideways. Understanding which phase is critical.
The Foundation: Swing Points
Trend identification relies on analyzing swing points—recent turning points on the chart.
Swing High (Peak): The highest point reached before price drops
Swing Low (Trough): The lowest point reached before price rises
The Three Trend States
Uptrend (Bullish): Buyers dominating, pushing price progressively higher
Downtrend (Bearish): Sellers dominating, pushing price progressively lower
Sideways/Ranging: Balance between buyers and sellers, no clear winner
Why Trend Matters
Trading with the trend:
- Higher win rate (60-70% typical)
- Institutional flow supports your trade
- Easier to hold winners
- Clearer stop loss placement
Trading against the trend:
- Lower win rate (30-40% typical)
- Fighting institutional pressure
- Winners reverse frequently
Professional Rule: The first question before every trade: "What's the trend on the higher timeframe?" If Daily is downtrend, only look for short setups. If Daily is uptrend, only look for long setups. This single filter increases profitability dramatically.
2Chapter 2: Uptrends and Higher Highs⏱️ ~3 min
An Uptrend is characterized by successive peaks and troughs moving higher, indicating buyers are willing to pay progressively higher prices.
The Defining Structure
An Uptrend requires:
Higher Highs (HH): Each new swing high is higher than the previous swing high
Higher Lows (HL): Each new swing low is higher than the previous swing low
Uptrend = Higher Highs (HH) + Higher Lows (HL)
The Mechanics
Phase 1: Rally (HH Formation)
- Price moves up from previous swing low
- Buyers push price higher
- Forms new swing high above previous high
Phase 2: Pullback (HL Formation)
- Price corrects downward (profit-taking)
- Buyers step in BEFORE price reaches previous low
- Forms new swing low above previous low
Phase 3: Repeat
- Pattern continues: Rally → Pullback → Rally
Professional Trading Strategy
In an Uptrend, ONLY look for long (buy) entries.
Entry Timing: Buy at Higher Lows (the pullback)
Entry Zones:
- Previous swing high (resistance turned support)
- Order Blocks from previous rally
- Fibonacci 61.8% retracement
Stop Loss: Below most recent Higher Low (with buffer)
Target: Next projected Higher High
3Chapter 3: Downtrends and Lower Lows⏱️ ~3 min
A Downtrend is characterized by successive peaks and troughs moving lower, indicating sellers are dominant.
The Defining Structure
A Downtrend requires:
Lower Lows (LL): Each new swing low is lower than the previous swing low
Lower Highs (LH): Each new swing high is lower than the previous swing high
Downtrend = Lower Lows (LL) + Lower Highs (LH)
The Mechanics
Phase 1: Drop (LL Formation)
- Price moves down from previous swing high
- Sellers push price lower
- Forms new swing low below previous low
Phase 2: Rally (LH Formation)
- Price corrects upward (short covering)
- Sellers step in BEFORE price reaches previous high
- Forms new swing high below previous high
Phase 3: Repeat
- Pattern continues: Drop → Rally → Drop
Professional Trading Strategy
In a Downtrend, ONLY look for short (sell) entries.
Entry Timing: Sell at Lower Highs (the rally)
Entry Zones:
- Previous swing low (support turned resistance)
- Order Blocks from previous drop
- Fibonacci 61.8% retracement
Stop Loss: Above most recent Lower High (with buffer)
Target: Next projected Lower Low
4Chapter 4: Sideways Trends and Ranging Markets⏱️ ~3 min
A Sideways Trend occurs when the market lacks clear directional bias, oscillating between defined support and resistance.
The Defining Structure
Equal Highs (EH): Swing highs are roughly equal (within 20-30 pips)
Equal Lows (EL): Swing lows are roughly equal (within 20-30 pips)
Sideways Trend = Equal Highs (EH) + Equal Lows (EL)
Trading Strategies for Ranges
Strategy 1: Range Trading (Advanced)
- Buy at support when bullish reversal forms
- Sell at resistance when bearish reversal forms
- Risks: Whipsaws, false breakouts
Strategy 2: Breakout Trading (Recommended)
- Avoid trading the range entirely
- Wait for decisive break above resistance or below support
- Look for breakout confirmation
- Enter in direction of breakout
Why Breakout Strategy is Safer:
- Clear directional bias after break
- Better R:R opportunities
- Less stress and whipsaws
5Chapter 5: Summary, FAQs & Quiz⏱️ ~4 min
Summary
The market has three trend states:
Key Principles (0/4)
Frequently Asked Questions
Q1: How do I know when a trend has ended?
A trend ends when the objective structure breaks:
Uptrend ends when: Price breaks decisively below the last Higher Low, creating a Lower Low.
Downtrend ends when: Price breaks decisively above the last Lower High, creating a Higher High.
Q2: Why is the Higher Low (HL) more important than the Higher High (HH)?
The Higher Low is critical because it confirms buyer conviction. It shows that during pullbacks, sellers couldn't push price down as far as previously.
Trading Implication: The HL is ideal for low-risk entry with tight stop below and excellent R:R to next HH.
Quiz
A textbook Uptrend is identified by a repeating sequence of:
In a Downtrend, the ideal entry point for a short trade occurs at:
What market condition is characterized by price moving horizontal between support and resistance?
When conducting Multi-Timeframe Analysis, align your trade entry with the trend of:
An Uptrend is considered broken when:
Call to Action
You can now objectively define the market's direction. Never trade without knowing the trend.
Make the Trend Your Friend
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Proceed to Lesson 3: Support and Resistance — Basic Levels
Prerequisites
Before studying this lesson, ensure you've completed:
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