What is a swing down and swing up the pattern in a trend?
The two charts below will explain very clearly the concept of ups and downs in a trend…
This first chart shows AUDCAD on the daily time frame in a downtrend market.
The next thing you will also notice is the up and down price patterns as the price keeps going lower and lower.
A similar but opposite situation occurs in an uptrend market, as shown on this EURUSD daily chart below:
These price rises and falls are like the waves of a trend:
- In an uptrend, the peaks and throughs of these ups and downs increase.
- in a downtrend, they are declining.
So, in an uptrend market, the price increases at higher highs and increases at lower lows. So here are some important points to remember:
- The downtrend in an uptrend occurs when the price makes a higher high (HH) and drops to a higher low (HL).
- So the entire distance between the formation of HH and HL is one swing down… not just one point.
Similarly, in a downtrend or bear market:
- The downside occurs when the price makes a lower high (LH) and moves down to a lower higher low (HL).
- So the entire distance between the formation of LH and LL is a drop… it’s not just a point.
Once you start to understand these concepts mentioned above, you will see and understand how trends end or begin. This is a very important trading concept.
How do trends start/end?
How does a trend start? How does a trend end? What tools or methods would you use to know the start and end of trends?
These are questions not only for swing traders but for many other forex traders as well.
For many swing traders, price action leaves clues as to when a trend may start or end.
Now you can see how the concept of ups and downs you just read about above is going to make sense here when it comes to trend identification.
When using price action just to identify the start and end of the trend, the following two are really important concepts that every forex trader should know, like the 10 commandments, except you only have to remember only 2 laws:
- An uptrend is said to start when the Higher High crosses over and the price closes above it.
- A downtrend begins when the Lower High forms and the Upper Low (HL) is crossed.
This chart shows what we mean:
The chart above is a textbook example. (It’s perfect in every way, in an ideal situation.)
But guess what?
The reality of forex trading is more like this:
As you can see from the chart above, it looks a bit confusing…and to be honest, it would be because there will always be a few false “trend reversal” signals before the trend actually changes.
There is no way you can solve the problem. This is how this forex market works.
You just have to learn to take it as it comes. As I said, the real market is not a textbook example.
One solution is to really spend a lot of time looking at charts and understanding how the price is moving and how the price is moving… it’s not a complete solution but it will help you a lot believe me.
Don’t forget to share this post with your friends if you found it useful. Continue with the swing trading course using the links below.