A three-gate classroom on hourly sterling

What counts as a trend

An uptrend is defined as successive higher highs and higher lows. A downtrend is defined as successive lower highs and lower lows. The absence of either series is classified as sideways.

A higher high is a swing peak above the prior swing peak, and a higher low is a swing trough above the prior swing trough. The matching downtrend marks are a lower high and a lower low. Upside momentum is treated as intact while new higher highs appear. Failure to make a new high, followed by a new lower low, is treated as a possible flip from uptrend to downtrend.

An orderly series, not a spike

News-driven spikes are distinguished from trends. After such a release the market may become range-bound, so the trend test is whether swing highs and lows still form a directional series.

An orderly uptrend is marked by a line from the chart's lower-left to upper-right that intersects price bars more than once. An orderly downtrend uses the opposite diagonal. That trendline overlap is treated as evidence that the move is orderly rather than a single spike.

The hourly sterling illustrations

An hourly GBPUSD chart in June 2015 illustrates a rising sequence of highs and lows. A May to June hourly chart of the same pair illustrates a falling sequence of highs and lows.

The measured pullback

Entries are located on a pullback to prior-swing support in an uptrend or resistance in a downtrend. Those locations are checked on 15-minute, 60-minute, and 240-minute structure before decisions return to the 60-minute chart. That multiple-time-frame reading accepts a shorter-horizon entry only if the longer-horizon swing structure still agrees.

A Fibonacci retracement is a measured pullback of a completed swing, expressed as a ratio of that swing, and is used to locate a possible continuation entry. A Fibonacci grid from the 9 June 2015 swing low to the 16 June 2015 swing high on that GBPUSD uptrend places the illustrated long after price returned to the 0.236 retracement following a bearish candle.

The shooting-star exit

After that 0.236 pullback, continuation is shown until a shooting-star candle appears. A shooting star is a candle with a long upper wick and a small body near the bar low. Candlestick patterns are used here as a discrete exit checkpoint: that bar is treated as the first visual sign that upside momentum has failed, as the first reversal mark, and as the exit cue. After that exit, price is described as moving sideways.

Trend following, in this workflow, is a procedure that stays with the prevailing swing series and updates stops instead of forecasting a price target. Once open gain equals the initial risk, the stop is moved to breakeven and then trailed if price continues, so a later reversal does not return the full open gain.

When no completed setup is present

Markets are described as trending about 25 percent of the time and remaining range-bound about 75 percent of the time. Most capital loss is attributed to acting when no completed trend setup is present.