Predicting Trend Changes

When the pattern of lower highs and lower lows stops it means the trend is coming to an end, and that a new trend may be beginning. Here are the three things to look for that signal the death of a trend.

1: A major break in the trend’s trendline.
2: A new swing high that’s above the previous major high point.
3: A new swing low that’s above the previous major low point.

This example is for a downward trend, an upward trend would need to use the opposite of steps 2 and 3.

Here is a chart that zooms in on the end of our previous example trend and shows these 3 things.

end of a trend

All 3 criteria have been identified, so we can safely say this trend is probably coming to an end and a new trend is beginning.

In the chart below we can see that our signals were correct. The old downwards trend ended and a new upwards trend began. It did not last very long, however, and you can see the same 3 signs again at the point where the new trend ended. See if you can pick them out.

end of a trend2

The idea is to know when trends are dying, so you don’t take bad trades at the end of a trend. Even if all the other trading signals are there you don’t want to get stuck in a trade when a trend is changing!

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