How to identify TRENDS in the MARKET | TRADING TIPS
Jordi Martí explains how to identify TRENDS in the MARKET. In TRADING, trends are your friend, but do you know the difference between a break and a perforation? Why do we have to be careful when trying to understand them? 🧐
What is an uptrend and downtrend? What is a trend line?
Surely you have heard many times: "the trend is your friend in the market", and it is.
The uptrend is any movement that has increasing highs and lows, not only the highs, but also the lows and vice versa.
The downtrend is any movement that h...
Read moreWhat is an uptrend and downtrend? What is a trend line?
Surely you have heard many times: "the trend is your friend in the market", and it is.
The uptrend is any movement that has increasing highs and lows, not only the highs, but also the lows and vice versa.
The downtrend is any movement that has decreasing highs and lows, not only the highs but also the lows.
For example, X is an uptrend: it has increasing lows and it has increasing highs. In this trend, I have put in the line that connects points of the minimums but here I can draw another line that connects the maximums. In this case, I have two tendencies: one faster than the other.
We must be very careful when the trends break, that is, even if we have plotted the points, the price gets below the trend. In this case, we must learn to differentiate when it is a break from when it is just a perforation. In this example, we see the main trend line and we see an accelerating trend line. This is the difference between breaking and piercing. In this case, the accelerating trend line has been broken, the price has crossed it and has not returned above it.
In the case of the main trend line, the price has broken it but has quickly re-entered; therefore it only pierces it. In this case, this trend line is no longer valid, it is broken, but the main one is still valid in downtrends. It is exactly the same but when the price goes down, we will pull the line for the highs. In the case of the artist's, we throw it over the peaks.
We must also differentiate between perforations. The price breaks it at the top but quickly goes back inside; therefore, the price remains valid or breaks. He breaks it but never goes back inside. In this case, from this point this perforation line the price goes out but quickly goes back inside. In this case, although here it seems that it wants to go inside, we see that the next candle no longer wants to go inside; therefore, in this case it is a clear break.
The bottom line, as I mentioned before, the trend is your friend. As long as it is valid, the price will continue to respect it, but be careful, especially with perforations and breaks, when a trend breaks it is no longer valid.
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