Trends can be thought of as support and resistance on a slope. I would say it’s one of the basics what everybody who trades should know.
- An Uptrend is formed when the price makes higher highs and higher lows. Price is continually rising over time.
- A Downtrend is formed when the price lower highs and lower lows. Price is continually falling over time.
As I am trading mostly small caps trend usage is quite important when you want to spot trend change or backside. When you see the trend breaking and direction of price changing.
Lets do some of examples here:
Here you can see an example of SPY index price action. Spy long term has always been going uptrend, but from time to time you can see some corrections in market and price breaks the short term trend. In this picture I am trying to show how to draw the lines. Usually uptrend line is like support line just trending upwards. So the same as for support we just need to connect lowest points of pullbacks what is going higher or the higher lows. You can draw many trend lines as price is changing and trend can change its direction.
Here you can see ROKU daily chart fragment where it starts with downtrend. See how many times its touching the line. Then it finally breaks trend, see circles, consolidates, finds support and starts slowly building uptrend. Then once again breaks the current uptrend line and previous trend line becomes as a resistance until it breaks the trend again and goes for small downtrend again. But once again breaks it and continues for much stronger uptrend until it breaks again.
Lets try to draw some trends intraday. And lets focus on some recent small cap plays.
Here you can see recent runner AQB. In small cap trading trends are quite important element as you need to know when direction is changing. Where is that tipping point. Especially important for SHORT side traders to spot the backside. I would say safe backside entry would be after hours when price dropped below $4.70 support. If your long bias it is important to know when to exit a trade. Good exit always is trend break.
Next you can see two another examples of trend break and backside confirmation.
Try it out yourself. Draw trends, draw support and resistance lines. Try to spot trend changes. The more you do it the better you get at it.
If you like this post, please like it, share it. Ask questions if you got any.
Thanks and see you on my next post.
Adding recent mover and how to spot backside. Trend break on VXRT
