How to define an uptrend? How to identify and trade using uptrend?
How to define an uptrend?
In previous episode we have discussed about 4 different types of trends or 4 different stages of market move.
They are
1. An uptrend
2. A downtrend
3. A broken uptrend to the downside a.k.a Bullish consolidation
4. A broken downtrend to the upside a.k.a Bearish consolidation
In this episode, we are going to focus on the first item, which is “UPTrend”. How to define or identify whether the market is in uptrend? Let’s discuss about this in detail.
UPTREND
What we look for in an uptrend is that, identified demand areas underneath current price are respected (are held) and in the process of the price moving up has taken out supply zones (broken through even if it was just by one tick).
In Simple terms, Demand areas are respected, supply areas are taken out
We define an uptrend using 2 possibilities, lets take it one by one:
Possibility 1
· We were able to draw an uptrend line, which is respected AND at least one opposing zone of supply was/is taken out
Possibility 2
· At least two opposing supply areas taken out, no possibility to draw a bullish TL
· The reason for the second possibility is that it sometimes is not possible to draw a trend line based on the rules. Again you will learn this in another lesson just accept this definition as it is for now. Later on it will become clearer.
Also a note on the zones: as mentioned in earlier lessons, we can only consider valid demand and supply zones when applying these rules therefore you should always ask yourself: what has this imbalance and potential demand zone accomplished? Has it taken out an opposing supply/demand zone? We always need to keep this in mind while marking zones.
Level on top of level:
· Also, Sooner or later you will come across situations where you identify supply or demand zones that sit right on top of each other or are very very close. This is called a “level on top of level situation
· Let’s assume for a moment that price was moving down, price reversed up and it broke two supply zones that were sitting right on top of each other. Does this mean we are now in an uptrend? No, it does not! In such cases, we should consider that it has just broken 1 zone.
So to summarize, we can consider an uptrend has officially began, if:
1. 1 Supply Zone is taken out & We are able to draw an bullish trendline (or)
2. If price takes out 2 supply zones.
Hope you are clear on “How to confirm whether we are in an uptrend” now. We can see other 3 scenarios in next sessions.
For more details and examples, checkout the video: