Which way is the trend on the higher timeframe?

You trade on one timeframe. You decide on the one above it. If you enter on the hourly, the daily trend is your boss. If you enter on the daily, look at the weekly. This is the whole idea of multi-timeframe alignment, and it is simpler than the name makes it sound: the bigger chart sets the direction, and the smaller chart finds the entry inside it.

The reason is not mystical. A daily trend is the sum of hundreds of hourly moves, most of which went the other way at some point. If you fight the daily on an hourly chart, you are betting that the small move you see will outrun a much larger one you are ignoring. Sometimes it does. Most of the time the bigger chart wins, and the trade that looked perfect on the hourly gets run over.

Reading the trend without arguing with yourself

Pick one way of calling the trend and use it every time. Any of these work, as long as you do not switch between them to get the answer you want:

• Swings. Higher highs and higher lows is an uptrend. Lower highs and lower lows is a downtrend. Anything else is a range. Look at the last three swings, not the last thirty.
• A moving average. Price above a rising 50-day is up; below a falling 50-day is down; a flat average with price crossing it is a range. The exact number matters less than the consistency.
• The last big move. Whichever direction the last impulsive leg went, that is the trend until a swing in the other direction breaks structure.

Write the answer down as one word: up, down, or range. If you find yourself writing "sort of up but", it is a range.

Putting question one and question two together

Now combine the zone with the trend. A support zone in an uptrend is a place to look for a long. A resistance zone in a downtrend is a place to look for a short. Those are the trades with the wind at their back.

A resistance zone in an uptrend is still useful, but not as an entry. It is where you take profit on the long you already have, or where you wait to see whether the trend can push through. Entering short there because "it is resistance" is fighting the boss. Same in reverse for support in a downtrend: a place to cover, not a place to buy.

When the higher timeframe is a range

A lot of the time, the honest answer is "range". That is not a no. A clean range is tradable, but only at its edges: buy at the bottom zone, sell at the top zone, and stay out of everything between. The middle of a range is the worst place on any chart. If the higher timeframe is a range and price is not at one of its edges, this question ends the checklist for today.

The trap of the pretty small chart

The most common way this question gets skipped is a five-minute or fifteen-minute chart that looks wonderful. Clean higher lows, a tidy flag, a moving average crossing. It looks like a trend because at that scale it is one. Then you zoom out and it is a small bounce inside a daily downtrend, heading straight into a resistance zone. The small chart was not lying. It was just answering a question you did not ask.

Example

This is a made-up example. Back to XYZ from the last chapter, sitting inside the 147.80 to 151.20 zone. You plan to enter on the daily chart, so the weekly is the boss. On the weekly, the last three swings are higher lows and higher highs, and price is above a rising average. One word: up. The zone is support, the trend is up, so the two questions agree. A long is the only trade worth planning here.

Now a second stock, call it ABC, at 41. On the fifteen-minute chart it has made three higher lows this morning and is pushing at 41.50. It looks bullish. On the daily, ABC has made lower highs for six weeks, and 41.50 to 42.30 is the last lower high. The small chart is showing a bounce into daily resistance in a daily downtrend. No long. If anything, this is the zone to watch for the trend to resume.

The question, answered

Decide the direction one timeframe above the one you enter on.
Call it in one word, the same way every time: up, down, or range.
Enter only at zones that agree with that direction; counter-trend zones are for exits.
In a range, trade the edges or wait.

This is the question the Terraline indicator is built to answer.