Trend, range, and a level

Trend, range, and level are three descriptions of the same price file. They are useful as labels for what has already happened. They are not schedules for what happens next. This chapter shows how to apply the labels without turning them into a story the chart did not tell.

A trend is a sequence, not a feeling

Call it an uptrend only when you can point at a sequence: higher swing highs and higher swing lows, on a timeframe you named in advance. Call it a downtrend when the swings step down. If you cannot mark the swings without arguing with yourself, you do not have a trend. You have a direction you prefer.

Trends also have a size. A rising week inside a falling year is both an uptrend and a downtrend, on two clocks. Before you say ‘the trend is up’, say the clock. ‘The daily chart has made higher lows for six weeks, while the monthly chart is still below last year’s peak’ is a description. ‘The trend is up’ is a slogan that hides the second half of the sentence.

A range is what a failed trend looks like

A range is a stretch where buyers and sellers keep meeting inside the same band. The high of the band is where, recently, sellers have been willing. The low is where buyers have been willing. The close in the middle is indecision, not a signal to do something. Ranges end when the price leaves and stays outside. They also end in your imagination, several times, before they end on the chart. A single close outside the band is a candidate. A return the next day is the range still doing its job.

Write the band down as prices, not as a picture. ‘Between ₹412 and ₹438 for three months’ can be checked. ‘Kind of sideways’ cannot. When the price is ₹440 you know you are outside. When it is ₹436 you know you are not.

A level is a price you chose to care about

Prior highs, prior lows, the price of a large gap, a round number, and the price where you decided you would exit are all levels. The market does not know about the last one. It sometimes appears to respect the others because many people can see the same past high and place orders there. That is a crowding effect, not a physical barrier. Crowds change their minds, and a level that held four times can fail on the fifth without apologising.

Use a level as a place where you will re-read the position, not as a place where price is required to turn. ‘If ₹438 breaks and the daily close stays above it, my range assumption is wrong’ is a test. ‘₹438 is support’ is a label that feels like a test and is not one.

One stock, three honest labels

Imagine a share that, on the weekly chart, fell from ₹520 to ₹300 last year and has since climbed to ₹390, pulling back to ₹350 and rising again. On the monthly chart you can still say: the larger move was down, and ₹390 has not reclaimed ₹520. On the weekly chart you can say: from ₹300, the swings have lifted. On the daily chart, this month, the price may be stuck between ₹370 and ₹395. All three sentences can be true on the same evening. A plan that needs only one of them is incomplete. A plan that pretends they contradict is confused about clocks.

What to remember

• Name the timeframe before you name the trend.
• A range needs two prices and a duration, written down.
• A level is a decision point for you. It is not a wall in the order book.
• One close through a level is a candidate. Staying through it is the evidence.
• Weekly, daily, and monthly labels can all be true together. The plan should say which one governs the decision.