Friday, January 22, 2016

Understanding higher high, higher low and lower high, lower low

There is always a saying "a trend is your friend" ..
And this in trading is particularly true... When a price goes up, it is because it had some sort of a momentum be it coming from news, from purely psychological or emotional of the common public... It tend to push a price towards a direction and this can be up or down...

There are many ways to look at trend and many different set of gurus will teach you different ways and the more expensive you joined a course, the more complicated technique the guru will teach you. This is to ensure that you have the perception that what you learn is worth what you pay.

After years of monitoring and investing in the market and many different types of techniques that I follow. I find that the easiest method is the most reliable method and that is the topic that we are discussing today - the higher high, higher low and lower high, lower low.

Above is the real time chart taken for forex USD:JPY pair. If you just by looking at the chart itself, you will say that it is trending upward. Of course, a more reliable method to look at it is that the price when moving up and down, it tends to create a price that goes has a price point that is higher than the previous high and a price point where the low of the price is higher than the previous low.

We call this higher high and higher low. When this is formed, we called this an uptrend. 
The opposite is true for downtrend when the price is creating a lower high and a lower low price point.

Although I mentioned here that it is a rather reliable method to look into trend or forming of new trend, it can always failed due to many reason. The best is to look at the higher high, higher low (or lower high lower low) to determine the first trend follow if you want to couple it with the moving average trend line.

You must also keep in mind if the particular asset type that you're following does have a tendency of not following the norm. This means there do have stocks that don't run like normal way.

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