Trends and Dow theory: Higher highs, higher lows
How to spot an uptrend or downtrend from its highs and lows, what Dow theory says about primary trends and corrections, and where traders place stops.
A trend is a staircase, not a straight line
Prices never move in a straight line. They rise, pull back, then rise again. Charles Dow noticed this more than a hundred years ago, and his idea is still the base of chart reading: an uptrend is a series of higher highs and higher lows.
What to look for
- Uptrend: each rally peaks higher than the last, and each dip stops higher than the last.
- Downtrend: lower highs and lower lows.
- If the highs and lows stop rising, the uptrend is in doubt, even before price falls much.
Dow theory also says trends come in sizes: a primary trend lasting months, corrections against it lasting weeks, and day-to-day noise. Trade with the big one.
On this chart every rally peaked higher than the one before, and every dip stopped higher than the one before. What is the trend?
- An uptrend
- A downtrend, because price keeps dipping
- No trend: price goes up and down
Show the answer
An uptrend. The dips don’t matter on their own. What matters is that each dip ends higher than the last and each rally goes further. That staircase is an uptrend.
The trend is your friend
Each pullback found buyers at a higher price than the last, most recently around ₹932. The staircase was still climbing, so the odds favoured more upside.
Many traders draw their stop-loss just under the last higher low. If price breaks it, the staircase is broken too.
Practise Trends and Dow theory, free
Reading about it is step one. In MarketSeekho you see a real NSE chart with the future hidden, call Bull or Bhalu, say why, and get graded on your reasoning, not luck.
Common questions
What is Trends and Dow theory?
Prices never move in a straight line. They rise, pull back, then rise again. Charles Dow noticed this more than a hundred years ago, and his idea is still the base of chart reading: an uptrend is a series of higher highs and higher lows.
What should I look for with Trends and Dow theory?
Uptrend: each rally peaks higher than the last, and each dip stops higher than the last. Downtrend: lower highs and lower lows. If the highs and lows stop rising, the uptrend is in doubt, even before price falls much.
How can I practise reading Trends and Dow theory for free?
MarketSeekho has a free four-page chapter on Trends and Dow theory (learn, answer a question, spot it on a chart, then make a call) and daily real-chart practice graded on your reasoning. No sign-up or money needed.