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What Do Lower Highs and Higher Lows Mean in Trading?

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Written by Timothy Sykes
Updated 5/16/2024 13 min read

Recognizing patterns such as lower highs and higher lows is crucial for predicting future market movements. These patterns help traders understand the underlying momentum and shifts in market sentiment, which are essential for making informed trading decisions. From my 20-plus years in trading and teaching, I’ve found that mastering these patterns allows traders to anticipate potential trend reversals and continuations, thereby enhancing their strategic decision-making.

Read this article because it unpacks lower highs and higher lows, providing you with tools to leverage these patterns for trend prediction in trading.

I’ll answer the following questions:

  • What do lower highs and higher lows mean in trading?
  • How can you identify a lower high and a higher low on a chart?
  • What is the significance of these patterns in market trends?
  • Are lower highs and higher lows reliable indicators for all time frames?
  • Can I use lower highs and higher lows for short-term trading?
  • What are the risks and benefits of trading with these patterns?
  • How do time frames influence the analysis of these patterns?

Let’s get to the content!

What Are Lower Highs?

“Lower highs” occur in a price chart when each peak in the price is lower than the previous one, typically indicating a weakening of the prevailing trend. This pattern is a vital signal in technical analysis, suggesting that the buying pressure is decreasing and a downtrend may be forthcoming.

Characteristics that typically identify a lower high on a chart:

  • Successive peaks declining in height.
  • Increasing selling pressure or decreasing buying pressure as the peaks form.
  • Formation near key resistance levels.
  • Correspondence with bearish chart patterns, such as head and shoulders or descending triangles.

What Constitutes a Lower High

Identifying a lower high requires a keen understanding of price movement and volume, elements that I emphasize in my trading courses due to their importance in confirming trend shifts.

  • The peak of the lower high does not surpass the height of the previous peak.
  • There is a noticeable decrease in volume as the new peak forms, indicating a lack of buyer support.
  • Subsequent price movements should break below previous support levels to validate the bearish signal.

The formation of lower highs is often accompanied by a shift in investor sentiment from optimism to pessimism, leading to profit-taking and reduced buying activity, which I’ve seen play out numerous times across different markets.

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Example of a Lower High on a Price Chart

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Lower highs are bearish indicators — but in my pennystocking niche, they can be the last gasp before a collapse!

In the chart below, the lower highs are marked with a “6” — that’s step number 6 in my 7-Step Pennystocking Framework, ‘The Dead Cat Bounce’.

Optec International Inc (OTCPK: OPTI) 3-year chart, daily candles. Source: StocksToTrade

What Are Higher Lows?

Conversely, “higher lows” are formed when each trough in the price is higher than the previous trough, indicating that the selling pressure is waning and an uptrend is likely forming. This pattern is particularly important for traders looking to capitalize on bullish momentum.

Characteristics of higher lows include:

  • Successive troughs rising in position.
  • Typically forming above key support levels.
  • Often associated with bullish chart patterns, such as ascending triangles or pennants.

What Constitutes a Higher Low

Determining a higher low involves analyzing price actions and volume, crucial indicators of the market’s sentiment and liquidity.

  • Each low is positioned higher than the preceding low, suggesting increasing buying interest.
  • Volume tends to be stable or increasing, providing support for the rising price levels.
  • Breaks above previous resistance levels following a higher low confirm bullish continuation.

The psychological dynamics behind higher lows often reflect growing confidence among investors, driving accumulating positions and leading to upward price movements—trends that are beneficial for long-position traders.

Example of a Higher Low on a Price Chart

Here’s one of the clearest continuation patterns I’ve ever seen on a daily chart, from UP Fintech Holding Ltd (NASDAQ: TIGR) on June 17, 2019.

UP Fintech Holding Ltd (NASDAQ: TIGR) daily chart, 5-minute candles. Source: StocksToTrade

See the way it stays within the higher range it establishes on those breakouts. It contracts after those spikes, holding above where you might set your stop-loss.

I call this chart pattern “The Stair Stepper” because of the order that it displays in its price action. It looks like a staircase. Again, it’s not perfect. Notice the yellow lines on the chart that approximate a series of steps.

Quick note: the TIGR chart uses five-minute candlesticks. When I looked at one-, two-, and three-minute candlesticks, some of the steps looked more like bull flags. One was a clear bull pennant.

This is another example of why you need to look at different time frames when planning trades.

Significance of These Patterns in Market Trends

Understanding the implications of lower highs and higher lows is fundamental for traders aiming to gauge market trends. These patterns not only signify potential reversals but also confirm the strength and sustainability of market movements, which can dictate strategic entry and exit points in trading.

  • Lower highs often precede bearish reversals or the continuation of downtrends.
  • Higher lows may indicate bullish reversals or the strengthening of uptrends.

These changes are signals that have a hand in informing your trading strategies. This is how these patterns fit into my 7-Step Pennystocking Framework:

While these big-picture patterns are pivotal, integrating candlestick patterns can offer deeper insights into market sentiment and price movements. Candlestick patterns, with their visual simplicity and effectiveness, can help confirm the trends indicated by these patterns, providing a robust foundation for trading decisions. For an extensive list of candlestick formations and their strategic use in trading, see my Candlestick Cheat Sheet.

Importance of Time Frames in Analyzing Lower Highs and Higher Lows

Understanding the significance of time frames is crucial when analyzing chart patterns such as lower highs and higher lows. These patterns, often indicators of broader market trends, can manifest differently across various time frames—daily, weekly, or monthly—each offering unique insights into market behavior. For instance, a lower high on a daily chart might suggest a short-term reversal in an uptrend, while the same pattern on a monthly chart could indicate a significant bearish shift.

Selecting the right time frame depends greatly on your trading strategy:

  • Day Traders typically use shorter time frames such as 1-minute or 5-minute candles to capture quick, significant movements.
  • Swing Traders may prefer hourly or daily candles to identify and follow short-to-medium term trends.
  • Long-Term Investors benefit most from weekly or monthly charts to understand broader market directions and filter out short-term noise.

My decades of trading and teaching have reinforced the value of aligning time frame analysis with trading goals to optimize strategy effectiveness and minimize risk.

How Lower Highs Indicate a Bearish Trend

The formation of lower highs is often interpreted as a bearish signal within technical analysis. This pattern occurs when each peak in price is lower than the previous peak, suggesting that the buying pressure is failing to reach previous highs, and bearish sentiment is taking hold. This is a crucial concept for traders as it often precedes a potential decline in asset prices, signaling a good opportunity to consider short positions.

You always want confirmation of a trend, and the ADX and DMI indicators are a great place to get it. These oscillation tools can help verify the strength of the trends and the direction of the price information, offering quantitative backing for your trading decisions. For a detailed understanding of how to effectively use these indicators in your trading strategy, explore my guide on ADX and DMI Usage in Trading.

Lower High in Historical Market Data Example

Historically, the pattern of lower highs has been a reliable indicator of bearish trends. For instance, before the 2008 financial crisis, major indices such as the S&P 500 exhibited clear lower highs that were early warnings of the upcoming significant market correction.

How Higher Lows Indicate a Bullish Trend

Conversely, higher lows suggest an emerging bullish trend. This pattern, where each low is higher than the previous, indicates growing demand and a strengthening market. Higher lows represent buyer confidence, as each dip attracts buying interest at progressively higher price levels, potentially signaling the start of a long-term bullish market phase.

You need to know this stuff backward and forward — pattern recognition especially helps if you have a busy life. There will always be another trade, but part of the beauty of trading is getting to do it from anywhere!.. smartphone apps let you trade on these patterns immediately, regardless of location. For tips on how to effectively buy stocks using your iPhone, check out my in-depth guide on How to Buy Stocks on an iPhone.

Higher Low in Historical Market Data Example

The dot-com bubble of the late 1990s provides a clear example of higher lows in action. Despite high volatility and numerous corrections, the NASDAQ consistently formed higher lows throughout the late 1990s, supporting a robust uptrend until the market peak in 2000.

Key Takeaways

  • Mastery of lower highs and higher lows is essential for predicting market movements.
  • These patterns provide insights into the market’s momentum and shifts in trader sentiment.
  • Recognizing these patterns can significantly enhance strategic trading decisions.
  • Traders should integrate these observations with other technical indicators for best results.

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

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What do you look for when you build YOUR trading plans? Write “I’ll keep it simple Tim!” in the comments if you picked up on my trading philosophy!

Frequently Asked Questions

Can I Use Lower Highs and Higher Lows for Short-Term Trading?

Yes, lower highs and higher lows can be effectively used in short-term trading to pinpoint potential reversal points. However, the reliability of these patterns can vary, and they should be combined with other indicators like volume and candlestick patterns for confirmation.

Are There Any Tools or Software That Can Help Identify Lower Highs and Higher Lows More Easily?

Several tools can assist in identifying these patterns:

  • Charting software: Most platforms include tools to draw trendlines that can highlight these patterns.
  • Technical indicators: Moving averages and oscillators can help confirm the trend direction implied by these patterns.

Are Lower Highs and Higher Lows Reliable Indicators for All Time Frames?

Lower highs and higher lows are generally reliable across various time frames but must be contextualized within the broader market conditions and trading volume. Their reliability increases when multiple time frames exhibit the same pattern, providing a stronger signal for potential trend continuation or reversal.

Can Lower Highs and Higher Lows Be Used to Trade Crypto Effectively?

Lower highs and higher lows can be applied to trading cryptocurrencies, but due to the high volatility and differing market dynamics of crypto assets, their effectiveness may vary. Traders should combine these patterns with an analysis of overall market performance and specific crypto behaviors to enhance accuracy. It is best practice to use these patterns as part of a broader strategy that includes other technical indicators and risk management tools.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”