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.

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. Impulse moves reflect the dominant order flow. Trading in the direction of an impulse is trading with the path of least resistance.

The Corrective Phase

After an impulse, price corrects — it pulls back against the direction of the move. Corrections can be shallow (38.2% Fibonacci retracement) or deep (61.8% or beyond). The key is that corrections are temporary pauses, not reversals — until they are. The trader's job is to distinguish between a correction and a reversal in real time.

Higher Highs and Higher Lows

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.

Multiple Timeframe Structure

Structure exists on every timeframe — and the higher the timeframe, the more significant the structural level. A daily chart support level matters far more than a 5-minute support level. Professional traders identify the dominant structure on the higher timeframe, then seek entries on the lower timeframe in alignment with that context.