Valid trendline anchors for three-part reversals

How the anchors are chosen

A trendline is a straight edge drawn between two allowed swing anchors, with no prices trading through the segment between those points.

A downtrend line is drawn from the highest high to the lowest minor high that occurs before the lowest low. Prices must not trade through the line between those two anchors.

A downtrend line that uses a minor high occurring after the lowest low is constructed incorrectly.

An uptrend line is drawn from the lowest low to the highest minor low that occurs before the highest high. Prices must not trade through the line between those two anchors.

A minor high is an intermediate swing high used as a downtrend-line or resistance anchor rather than a high that prints after the lowest low. A minor low is an intermediate swing low used as an uptrend-line or support anchor rather than a low that prints after the highest high.

What a breakout can show

A breakout is a trade through a correctly drawn trendline or through a prior swing used as confirmation.

A trade through a correctly drawn downtrend line is the first indication that demand may be interrupting the prevailing downtrend.

After a downtrend line is crossed, a later test of the prior lows that fails to print a new lower low is additional evidence of demand at that support. Support is a prior low or horizontal shelf where a later test fails to make a new lower low.

A retest is a return to the prior extreme after a trendline cross, used to check whether the old trend can still print a new continuation low or high.

A break of a minor uptrend line after the main downtrend line has already been crossed can mark the start of the retest of prior lows.

What completes a trend-reversal

A trend-reversal reading is indicated only when three conditions occur together: prices cross the constructed trendline, the market stops making lower lows in a downtrend or higher highs in an uptrend, and price trades above the prior minor high in a downtrend or below the prior minor low in an uptrend.

Once the trendline cross and the failed new low are in place, a trade above the previous minor high completes the downtrend-to-uptrend reversal sequence.

Resistance is a prior minor high that must be traded through to finish a downtrend-to-uptrend reading. A trend-reversal is recognized only when the trendline cross, an end to continuation extremes, and a trade through the prior opposing swing appear together.