Prices never go up in a nice smooth line. Instead its two or three steps up and one or two steps back. They zigzag. If the price is trending up, the upward move is stronger than the downward move. Conversely, if the price is trending down, the zigzag is stronger on the downward move.

The share price exhibits this saw tooth pattern because of short term trading activity. When the stock is trending up, some traders decide to take a profit, and in doing so increase the amount of shares for sale. They take out the highest bidders and go onto the next lower bidder and so forth. The price is forced downwards until it gets to a point though where traders see it as an attractive entry price. Buying activity then forces the price to move back up. This gives a series of peaks (P) and troughs (T).

Uptrend – Start with a trough and a peak. Move to the next trough. Is this trough at a higher price than the last trough? If it is, then follow the price to the next peak. Once the price rises above the price of the previous peak, a new higher peak will be formed. If this is the case, then you have normally in an uptrend. This also occurs at the beginning on the Ascending phase.

A confirmation of an uptrend is a BUY signal.

Downtrend – The definition for a downtrend is the reverse of the uptrend. Start with a peak and a trough. Move to the next peak. Is this peak at a lower price than the last peak? If it is, then follow the price to the next trough. Once the price falls below the price of the previous peak, a new lower trough will be formed. If this is the case, then you are normally in a downtrend.

A confirmation of a downtrend is a SELL signal.