# Trend and range

> Tell an uptrend, a downtrend and a sideways range apart by their highs and lows, and see why the same rule wins in one and loses in another.

- Course: [Trading Basics: How It Works, How Not to Lose Everything](https://productovi.com/courses/trading.md)
- Module: What is a price chart telling me?
- Lesson 18/32, ~26 min
- Source: https://productovi.com/courses/trading/trend-and-range

## Up, down or sideways?

**Alex Tutor:** Back on your Pebble practice account, today's question is simple to ask and easy to get wrong: which way is the market going? Marc has 120 days of Bluefin Energy for us.

![Pebble stacks step up, sit flat inside a roped box, then step down. Nora photographs the climb, Marc points at the flat box and Alex studies the way down.](https://productovi.com/courses/trading/diagrams/m5-l2-scene.png)

**Marc:** Daily candles are busy, so I squeezed every two weeks into one block: its highest high, lowest low and last close.

**Dataset (CSV):** [Bluefin Energy, 120 days as 12 two-week blocks](https://productovi.com/datasets/trading/trend-and-range/m5_bfe_blocks.csv)

Built from the daily file below. Prices in dollars.

- `block`: Block number, 10 trading days each
- `high`: Highest price in the block
- `low`: Lowest price in the block
- `close`: Close of the block's last day

**Alex Tutor:** Here's the plain test. In an **uptrend**, each swing makes a **higher high** and a **higher low**: the price climbs in steps. Blocks 1 to 4: highs 41.80, 43.03, 45.44, 47.75; lows 39.80, 40.86, 42.62, 44.70.

**Alex Tutor:** A **downtrend** is the mirror: **lower highs** and **lower lows**. And a sideways **range**: highs stall at about the same price, lows at about the same price, and the price bounces between them.

**Alex Tutor:** Before the chart, check the definition. What actually makes an uptrend?

> **Exercise:** Which description defines an uptrend?

**Sofia:** How long is one swing, then?

**Alex Tutor:** There's no fixed length. Marc's two-week blocks are one simple way to see swings without the daily noise. Pick one way and use it the same way every time, so you don't bend the picture toward what you hope to see.

**Bluefin Energy, two-week blocks**

| Block | Block high | Block low | Block close |
| --- | --- | --- | --- |
| 1 | 41.8 | 39.8 | 41.73 |
| 2 | 43.03 | 40.86 | 42.83 |
| 3 | 45.44 | 42.62 | 45.11 |
| 4 | 47.75 | 44.7 | 47.01 |
| 5 | 49.55 | 45.67 | 46.88 |
| 6 | 49.6 | 45.44 | 46 |
| 7 | 49.5 | 45.37 | 49.25 |
| 8 | 49.4 | 45.15 | 45.37 |
| 9 | 45.45 | 43.16 | 43.34 |
| 10 | 43.48 | 40.95 | 41.43 |
| 11 | 41.6 | 39.02 | 39.15 |
| 12 | 39.2 | 36.56 | 36.68 |

> **Exercise:** Match each stretch of blocks with what the chart shows.

**Alex Tutor:** Let's turn that into a routine you could repeat on any chart. What comes first?

> **Exercise:** Put the steps for labelling a stretch of a chart in sequence.

## Steps or noise?

**Nora:** Wait. Block 8's high, 49.40, is lower than block 7's, 49.50. And its low is lower too. Isn't that a downtrend already?

**Alex Tutor:** Good eye, but look at the size. In the uptrend each step was one to two and a half dollars. Here it's 10 cents and 22 cents. That's noise inside a range, not a step.

![Blocks 1–4 step up by one to two and a half dollars, blocks 5–8 move only by cents (−0.10, −0.22) inside a range, blocks 9–12 step down.](https://productovi.com/courses/trading/diagrams/m5-l2-steps.png)

*Compare the size of the steps, not just their direction.*

**Marc:** I only call a new trend when the steps are clear and repeat. Before that, I call it "not sure", and "not sure" is a fine answer.

**Alex Tutor:** Also, a trend is only visible looking back. On the last day of block 4 nobody knew a range was coming. The labels are a description of the past, not a promise about the next block.

> **Exercise:** Block 7 closed at 49.25, near the top of the range. That close alone proves a new uptrend has started.

## One rule, three markets

**Nora:** I found a simple rule online. Buy 100 shares when today's close is the highest of the last 10 days. Sell five days later. It made money in a trend!

**Sofia:** Sell after five days, whatever happens?

**Nora:** Whatever happens. No stop, no feelings. That's the beauty of it.

**Alex Tutor:** Let's run it over all 120 days, one trade at a time, with 4 dollars of costs per round trip for the spread and commission. Here's the full daily file and the result.

**Dataset (CSV):** [Bluefin Energy, 120 daily candles](https://productovi.com/datasets/trading/trend-and-range/m5_bfe_trend.csv)

> **Nora's rule, after costs**
>
> - **Uptrend (days 1–40):** 4 trades, 3 wins: −55, +215, +66, +137. Net +363.
> - **Range (days 41–80):** 3 trades, 0 wins: −221, −363, −151. Net −735.
> - **Downtrend (days 81–120):** no trades: there was never a new 10-day high.

> **Exercise:** Nora's rule: buy 100 shares when the close is the highest of the last 10 days, sell five days later, 4 dollars of costs per round trip. What is its net result over all 120 days, after costs, in dollars? Use a minus sign for a loss.

**Nora:** But the first stretch looked so good! I even took a screenshot.

**Alex Tutor:** That's the trap. The good stretch is the one people screenshot. A rule's record has to include every stretch: the dull ones and the painful ones too.

![Nora’s rule on all 120 days: +363 in the uptrend, −735 in the range, no trades in the downtrend. After costs the full record is −372.](https://productovi.com/courses/trading/diagrams/m5-l2-full-record.png)

*The screenshot shows the first stretch; the record shows all three.*

**Sofia:** Why did the same rule lose every time in the range?

**Alex Tutor:** In a trend, a new 10-day high often means the climb is going on. In a range, a new 10-day high is just the top of the box, the place where the price kept turning back down. The rule bought there three times.

![In the range the rule bought three new 10-day highs near the top of the box (49.20, 49.30, 47.91) and lost 221, 363 and 151 dollars after costs.](https://productovi.com/courses/trading/diagrams/m5-l2-top-of-box.png)

> **Exercise:** Why did "buy a new 10-day closing high" lose in blocks 5–8?

## How much can 7 trades tell you?

**Nora:** So I just use it in trends and skip ranges. Easy.

**Alex Tutor:** Only if you can tell which one you're in while it's happening, and we saw that's hard. Also: 7 trades is far too few to judge any rule. I don't trust a rule's numbers before 30 trades at the very least.

**Marc:** Three wins out of four looked great in the uptrend. Four trades is a coin tossed four times. The range took it all back in three trades.

> **Exercise:** Nora's rule (buy a new 10-day closing high, sell five days later) made 7 trades in 120 days. Which conclusions about it are fair? Choose all that apply.

**Alex Tutor:** Nora still wants to switch the rule on "only in trends". One last statement to judge.

> **Exercise:** Once you have labelled the last few blocks an uptrend, you know the next block will most likely make a higher high.

**Nora:** It feels like a waste of a good rule.

**Alex Tutor:** It isn't wasted. Write it down, test it on many more trades with costs, in trends and ranges alike, and only then decide.

**Alex Tutor:** Now put it together for Nora in a few sentences.

> **Exercise:** Nora says: "The rule won 3 of 4 trades in the uptrend, so it works. I'll use it from tomorrow." In 2–3 sentences, explain with the numbers why that conclusion isn't safe.

> **Key ideas**
>
> - **Uptrend:** higher highs and higher lows. **Downtrend:** lower highs and lower lows. **Range:** highs and lows stall at about the same prices.
> - Compare the size of the steps: a few cents inside a range is noise, not a new trend.
> - A trend is clear only looking back; the label describes the past.
> - The same rule made +363 in the trend and −735 in the range: −372 after costs.
> - 7 trades are far too few to judge a rule; wait for at least 30.

> **Educational, not advice**
>
> This course explains how trading works; it never tells you what to buy or sell. Most people who trade lose money, and you can lose all of it. For taxes and rules, ask a licensed professional where you live.

- Previous lesson: [Candles and timeframes](https://productovi.com/courses/trading/candles-and-timeframes.md)
- Next lesson: [Support, resistance and breakouts](https://productovi.com/courses/trading/levels-and-breakouts.md)

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