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Higher Highs & Higher Lows: How I Ride a Trend Until It Breaks

A silhouetted hiker climbs a mountain ridge at sunset, illustrating the trading principle that the trend is your friend.

Stocks do not usually go straight up. They zigzag.

One of the simplest ways I judge whether a stock is still in a healthy uptrend is to look at those zigzags and ask whether the highs are getting higher and the lows are getting higher too.

A stock rallies, pulls back and finds a floor. If that floor is higher than the previous one, I pay attention. If the next move then takes out the previous high, I have a higher low and a higher high. Put enough of those together and the stock is showing me an upward structure.

I can draw a rough channel through those highs and lows. I still do not know where the final top will be, but I have something much more useful than an arbitrary price target: a structure I can follow.

I can trade the swings inside that channel, or I can enter the trend and stay with it while the structure remains intact. Which approach I use depends on the stock, timeframe and what I am trying to accomplish.

The important part is that I do not fall in love with the trend. Eventually it changes. If the stock stops making higher lows and breaks through the rising support structure, that is information. I would rather respond to that than keep holding because I decided the stock should keep going.

The opposite can happen too. A stock can break above the top of its channel and accelerate. If I catch that move, great. I still know parabolic moves do not last forever, so I keep watching the structure rather than trying to predict the exact top.

That is what I like about trend trading. I do not need to know the final destination. I need to recognize when the market is still moving in my direction and when it is no longer doing that.

For more, read Support & Resistance, Trade What the Stock Is Doing, and the cornerstone How I Think About Trading.

Continue exploring

This article is part of my Trading & Markets authority series. Continue with Capital Markets hub, Getting Shaken Out Is Better Than Getting Blown Out: How I Think About Stop Losses, Plan the Trade Before You Enter It and You Can Always Buy It Back: One of the Best Trading Lessons I Learned.

This article reflects my personal trading approach and is for educational purposes only. It is not investment advice.

Chad McMillan

Chad McMillan is a creative entrepreneur and strategic advisor with over 20 years of experience in and around the capital markets, focused on finding hidden potential in companies, ideas, markets and people, and advancing what they can become.