How to Identify Uptrends and Downtrends Using Highs and Lows
Distinguish a single day's price change from a trend and compare highs and lows over a consistent period. Learn how to keep your criteria consistent when daily and weekly charts point in different directions.
A trend describes the direction prices have moved over a defined observation period, rather than the color of a single day's candle. Look for highs and lows rising together or falling together, but first specify the candle timeframe and comparison period. If highs and lows point in different directions, you can record a transition or an expanding range rather than force a single directional label.
Attach a timeframe to every trend statement
A rebound across a few daily candles can coexist with a decline lasting several months. Without specifying whether you mean the last few days or several weeks, you risk giving the same answer to different questions. Record both the start of the observation period and the date of the last completed candle. Align the period with your intended holding horizon, and avoid suddenly switching from short term to long term because prices moved against you. Use a broader chart to understand the context, rather than to obscure whether your original assessment was wrong.
Select highs and lows using consistent rules
Connecting every small fluctuation causes trend labels to switch frequently. Selecting only the large swings that look convincing, however, can turn the exercise into analysis with the outcome already known. For example, you can define a rule in advance that treats a point as a potential high if it exceeds a set number of candles on either side. This is an illustrative method, not a universally optimal setting. A rule requiring candles to the right also creates a delay: the high can be confirmed only after those candles appear. Record that delay and distinguish the current endpoint from a confirmed turning point.
Trend persistence and valuation are separate questions
An uptrend summarizes recent price structure; it is not evidence that a company is undervalued. A downtrend likewise does not necessarily mean the business is deteriorating. Writing down which changes to the highs and lows would require you to revise your description helps keep interpretations consistent. Distinguish a temporarily lower low from a lower low followed by a lower rebound high, and record the date you observed the change. The aim is to show both the consistency and uncertainty of the current structure, rather than declare the future direction certain.
Worked example
Hypothetical example: If three lows selected using the same criteria are 8,000 won, 8,600 won, and 9,100 won, and two highs are 9,000 won and 9,800 won, both highs and lows have risen over the observation period. A subsequent price of 9,050 won marks the first change in the pattern of lows. If the latest high has not yet been confirmed, however, record the lower low and the unconfirmed high separately rather than immediately declaring a downtrend.
What to check
- State the candle timeframe and observation period when describing a trend.
- Keep the rules for selecting local highs and lows consistent.
- Distinguish an unfinished rebound from a completed high.
- Do not confuse price direction with evidence for a company's valuation.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.