Identifying Trends — Higher Highs, Moving Averages & Crossovers
Learn to spot uptrends, downtrends, and sideways markets. Understand moving averages, golden crosses, and death crosses.
"The trend is your friend" is the oldest saying in trading — and it's true. Most money is made by identifying a trend early and riding it. Fighting the trend is how most beginners blow up their accounts.
What Is a Trend?
A trend is simply the general direction the price is moving over time. There are three types:
- →Uptrend: The price makes higher highs and higher lows. Each pullback stops at a higher level than the last
- →Downtrend: The price makes lower highs and lower lows. Each bounce fails at a lower level
- →Sideways (ranging): The price bounces between a ceiling (resistance) and a floor (support) without clear direction
Reading Higher Highs and Higher Lows
The simplest way to identify a trend is with your eyes. Look at a price chart and ask: are the peaks getting higher? Are the troughs getting higher? If yes, you're in an uptrend.
Example: Imagine the FTSE 100. It hits 7,500 then pulls back to 7,350. It rallies to 7,600 (higher high), then pulls back to 7,420 (higher low). It pushes to 7,700 (another higher high). That's a textbook uptrend.
The trend breaks when the pattern stops. If the FTSE makes a high of 7,700 then falls below the previous low of 7,420 — the uptrend structure is broken.
Moving Averages (MAs)
A moving average smooths out price data to show the underlying trend. The two most common types:
Simple Moving Average (SMA): Adds up the closing prices over a period and divides by that number. A 50-day SMA takes the last 50 closing prices and averages them.
Exponential Moving Average (EMA): Gives more weight to recent prices, so it reacts faster to new data. Traders who want quicker signals prefer EMAs.
Key MAs to watch: The 20-day (short-term), 50-day (medium-term), and 200-day (long-term) are the most widely followed. When price is above the 200-day MA, the long-term trend is considered bullish.
Golden Cross & Death Cross
These dramatic-sounding patterns are actually simple concepts:
Golden Cross: The 50-day MA crosses ABOVE the 200-day MA. This is a bullish signal suggesting the trend is turning upward. It generates major headlines when it happens on the S&P 500 or FTSE 100.
Death Cross: The 50-day MA crosses BELOW the 200-day MA. This is a bearish signal. It warned traders before the 2008 crash and the 2020 Covid selloff — though it also gives false signals, so never rely on it alone.
Practical Tips
- ✓Always check the trend on a higher timeframe first. If the daily trend is up, look for long entries on the 1-hour chart
- ✓Don't try to catch the exact bottom or top — enter once the trend is confirmed
- ✓Use moving averages as dynamic support/resistance. Price often bounces off the 50-day or 200-day MA
- ✓In a sideways market, trend-following strategies fail. Switch to range-trading or sit on your hands
Risk Warning
Trading and investing carry significant risk. You can lose more than your initial deposit when trading leveraged products. Past performance is not indicative of future results. The content on TradeLearn is for educational purposes only and should not be considered financial advice. Always do your own research and consider seeking advice from a qualified financial adviser before making investment decisions.