What Is Trend Resumption And How To Identify It?
A trend resumption occurs when a market correction comes to an end and price continues in the prevailing trend direction.
In an uptrend, this would mean the market retraces before moving to a new high. In a downtrend, this means price corrects before moving to a new low.
Both situations indicate that the trend has resumed, hence the use of ‘resumption.’
Side note – Trend continuation and trend resumption are interchangeable terms.
What does trend resumption look like on a chart?
Resumption of an uptrend
During an underlying uptrend, we should be looking for the market to move to a higher high. This confirms uptrend resumption.
(Source – TradingView)
Resumption of a downtrend
During an overall downtrend, we should wait for price to move to a lower low. This confirms downtrend resumption.
How to identify probable trend continuation
As the examples show, it is straightforward to see that a trend has resumed after the new high or low is made. At that point, it is usually too late to enter as the risk is not worth the potential reward.
Instead, here are 3 techniques that you can use to ‘predict’ likely trend continuation.
1. Surge in volume
A price move in the prevailing direction, accompanied by an increase in volume, means the market should have enough steam to extend the trend further.
Now that you know what trend resumption is and how to identify it, you can trade in the direction the market is flowing. Or, if you are a reversal trader, you know when to stay out and wait until momentum dies down.
Either way, study these examples again, and when in doubt, use these three techniques.
May the market be with you.