Identifying Trend Phases

The Three Market Phases

Price does not move in a straight line. It advances in waves — impulse moves in the direction of the trend, interrupted by corrective pullbacks. Understanding which phase the market is in determines which strategies are valid and which are not. Trading a trend-following strategy in a range, or a range strategy in a trend, is a systematic way to lose money.

The Impulse Phase

An impulse move is a strong directional move — a series of candles strongly in one direction, often accompanied by above-average volume and wide-bodied candles. Impulse moves reflect dominant institutional order flow. They are characterized by:

• Large-bodied candles with minimal wicks
• Little to no overlap between consecutive candle bodies
• Above-average session volume (on instruments where volume is available)
• Minimal retracement before continuation

The Corrective Phase

After an impulse, price corrects — it pulls back against the direction of the move. Corrections are the market digesting the impulse, allowing participants who missed the move to enter and late longs/shorts to exit. Corrections are characterized by:

• Smaller candle bodies with more overlap
• Lower volume than the preceding impulse
• Overlapping price action that "chops"
• Retracement to a Fibonacci level (38.2%, 50%, or 61.8% are common targets)

Higher Highs and Higher Lows — The Definition That Matters

An uptrend is defined by a sequence of higher highs (HH) and higher lows (HL). Each new swing high exceeds the previous, and each pullback holds above the previous pullback low. When a pullback breaks below the most recent HL, the structural integrity of the trend is questioned. When a subsequent high fails to exceed the previous HH, the trend is likely over.

A downtrend is the mirror: lower lows (LL) and lower highs (LH). Every concept applies symmetrically.

Multiple Timeframe Structure

Structure exists on every timeframe — and the higher the timeframe, the more significant the structural level. A daily chart structural level matters far more than a 5-minute structural level. The professional workflow:

1. Identify the dominant trend and structure on the weekly chart
2. Find the key structural levels on the daily chart
3. Wait for a corrective move on H4 or H1 that approaches a structural level
4. Enter on a lower timeframe signal (M15, M5) that confirms the correction is ending

Avoiding the Most Common Structural Error

The most common mistake is calling a trend based on insufficient data. Two higher highs does not make an uptrend — it may simply be a rebound within a larger downtrend. Always zoom out. The market structure on the daily chart overrides the structure on the H1 chart every time.

The trend is your friend — until the structure tells you the friendship is over. Learn to read the precise moment that happens.