When the pattern of lower highs and lower lows stops it means the trend is coming to an end, and that a new trend may be beginning. Here are the three things to look for that signal the death of a trend.
1: A major break in the trend’s trendline.
2: A new swing high that’s above the previous major high point.
3: A new swing low that’s above the previous major low point.
This example is for a downward trend, an upward trend would need to use the opposite of steps 2 and 3.
Here is a chart that zooms in on the end of our previous example trend and shows these 3 things.
All 3 criteria have been identified, so we can safely say this trend is probably coming to an end and a new trend is beginning.
In the chart below we can see that our signals were correct. The old downwards trend ended and a new upwards trend began. It did not last very long, however, and you can see the same 3 signs again at the point where the new trend ended. See if you can pick them out.
The idea is to know when trends are dying, so you don’t take bad trades at the end of a trend. Even if all the other trading signals are there you don’t want to get stuck in a trade when a trend is changing!