How to Read Candles & Trends
A trend is a sequence of prices that, on average, pushes in one direction. This lesson teaches you to read structure, time entries on pullbacks, and define invalidation so you can manage risk rationally.
- Mark the last 3–5 swing highs and lows.
- Ask: are highs and lows progressing up or down?
- Check the MA slope for confirmation; if flat → you’re likely ranging.
1) Trend basics
We label trends on swing structure—the sequence of pivot highs/lows—rather than tiny intra-bar noise. Uptrends show rising swing lows and highs; downtrends the opposite. Ranges show no net progression.
- Uptrend: latest swing low > prior swing low and latest swing high > prior high.
- Downtrend: latest swing high < prior swing high and latest swing low < prior low.
- Range: neither condition holds for 3+ swings → no bias.
2) Higher highs & higher lows — the pullback entry
Don’t chase the candle that breaks the high; wait for the pullback. Enter near the new higher low with the stop below the previous low. That keeps invalidation objective instead of emotional.
- Identify HH/HL structure on a higher timeframe (context).
- On your entry timeframe, wait for a pullback that holds above the prior HL.
- When price reclaims the 8-SMA (first green close back above), enter long.
- Stop: 1–1.5× ATR below the HL (or just below the swing).
- Targets: next swing high / channel top / measured move.
- Buying the breakout candle far from structure → poor R:R, easy to get shaken out.
- Calling a trend on two swings only; require several HH/HL to confirm.
3) Moving averages (MA) as a trend filter
Short MAs (8–10) hug price in strong trends; longer MAs (20–50) capture regime. Use MAs for context—slope and location—rather than as a raw signal. If price is extended >1.5× ATR above the MA, pullbacks are likely.
The MA acts as a proxy for the crowd’s average position. Pullbacks that hold above it show shallow mean reversion—a sign the trend is intact. You let volatility cool, then join when momentum resumes.
4) Trendlines & channels
Connect two swing lows (uptrend) or highs (downtrend); a third touch validates. Channels are a parallel copy on the opposite swings. Use them to frame targets and avoid late entries.
- 3rd touch ≈ higher confidence; don’t force lines through wicks that don’t fit.
- Break of trendline ≠ instant reversal—look for a lower high / higher low after the break.
5) Breakouts & retests
Quality breakouts clear the level and retest from the other side. Skip extended breaks where R:R collapses. Sequence: compression → break → retest that holds → continuation.
- Prevailing structure (up / down / range) is clear.
- Invalidation is objective (which swing breaks the story?).
- Confluence present (MA slope, level, channel, volatility).
- R:R ≥ 2:1 to the next logical target.
Test yourself — where’s the entry?
Click the chart where you’d enter according to the rule for that scenario. We grade by timing: ±2 candles is perfect, ±4 candles is close. Use “Reveal answers” to compare.