Trend Identification for Pattern Traders
Master trend identification using price action, structure, and moving averages to filter your pattern signals.
Trend Identification for Pattern Traders
Trading bullish patterns in uptrends and bearish patterns in downtrends dramatically improves win rate. But first you must accurately identify the trend.
The Basic Definition
Uptrend: Higher highs and higher lows. Each peak and trough is higher than the last.
Downtrend: Lower highs and lower lows. Each peak and trough is lower.
Sideways: Neither -- price oscillates between horizontal S/R.
Using Moving Averages
Price above 50 SMA and 200 SMA, both rising = strong uptrend. Below both, both declining = strong downtrend. Between them or both flat = transitional/ranging.
Trend Phases
Phase 1 (Accumulation): Smart money builds positions. Market appears to be ranging.
Phase 2 (Markup): Trend is underway. Pullback-to-support patterns are most effective.
Phase 3 (Distribution): Trend matures. Reversal patterns carry more weight.
Phase 4 (Decline/Rally): Trend reverses.
Trend Strength
Strong: steep MA slope, clean swing structure, volume expanding on trend moves, shallow pullbacks (38.2%).
Weak: flat MAs, irregular structure, declining volume, deep pullbacks (61.8%+).
Common Mistakes
Seeing trends that do not exist (forcing a trendline in a range). Fighting the trend. Confusing a pullback with a reversal. Not re-assessing regularly.
Pattern Selection by Trend Phase
Early trend: Engulfing, Morning/Evening Star (enter aggressively). Mid trend: Hammer/Shooting Star at MA (standard pullback entries). Late trend: Doji, Spinning Top at extremes (watch for reversal). Range: trade at extremes only.
> Key Takeaway: Identifying the trend correctly is half the battle. Bullish patterns in uptrends and bearish patterns in downtrends is the simplest rule that delivers the biggest improvement.