Technical Analysis Basics

Trend Identification

The Trend is Your Friend

One of the oldest sayings in trading is "the trend is your friend." Trading with the trend dramatically increases your odds of success. Fighting the trend is how most traders lose money.

The Three Types of Trends

Uptrend (Bullish)
- Higher highs and higher lows
- Each peak is higher than the last
- Each dip finds support at a higher level

Downtrend (Bearish)
- Lower highs and lower lows
- Each peak is lower than the last
- Each rally fails at a lower level

Sideways (Ranging/Consolidation)
- Price bounces between support and resistance
- No clear higher highs or lower lows
- Often precedes a breakout

Uptrend in action: Low: $20 → High: $25 → Low: $22 → High: $28 → Low: $24 Notice: Each low ($20 → $22 → $24) is higher than the previous low

Higher lows are the key to confirming an uptrend

Using Trendlines

A trendline connects swing points to visualize the trend:

Uptrend line: Connect the lows (acts as support)
Downtrend line: Connect the highs (acts as resistance)

A valid trendline needs at least 2 points, but 3+ touches makes it more reliable.

SUTOK uses fractal analysis to identify trends automatically. Look at the "Fractal Trend" indicator in your analysis results.

Trend Strength

Not all trends are equal:

Strong trend: Steep angle, small pullbacks, high volume
Weak trend: Shallow angle, deep pullbacks, declining volume

The ADX indicator (which SUTOK calculates) measures trend strength:
- ADX < 20: No trend / ranging
- ADX 20-40: Moderate trend
- ADX > 40: Strong trend

Trends don't last forever. Watch for signs of exhaustion: divergences, failed breakouts, and declining volume on moves.

Key Takeaways

  • Uptrend: higher highs + higher lows; Downtrend: lower highs + lower lows
  • Trade with the trend, not against it
  • Use trendlines to visualize and trade trends
  • ADX measures trend strength (>25 = tradeable trend)