The higher high, lower low pattern trading strategy is a must-know.
Believe me, it is!
You can’t avoid this strategy even if you want to since it forms major and minor trends.
In short, it’s one of the first things you’ll learn as a new crypto trader.
So relax as I show you how to trade higher highs and lower lows or lower highs and higher lows.
And most importantly, what they represent.
The first clue is that these are reversal signals indicating the start or end of a short-term, medium-term, or long-term trend.
Wanna learn more?
Read on to find out what the higher high, lower low pattern trading strategy is all about.
What is High and Low in Crypto Market?
Highs are the peaks or tops on your chart. It looks like an M or inverted letters V, U, and W.
Whereas the lows are the troughs or bottom on the chart. You can liken it to a V, U, or W bottom.
Sounds simple right?
Go ahead and spot each of these on a Bitcoin chart.
The peaks (highs) and troughs (lows) have been outlined on the BTC/USDT 1-day chart below.
A more technical definition of high and low is the extent price traded within a session.
A session is like a timeframe.
Let’s take the 5 minutes timeframe for instance.
If the candle ranged between $5 and $20, then the first value is its high and the second is its low. Just for that time frame!
And if several candles within a range on that timeframe do not exceed a certain limit, they have collectively formed a highest high or low.
Stay with me!
Remember a candle has four major parts right?
And these parts are the open, close, high, and low.
Therefore, the high and low are important elements when analyzing a candle.
You can tell if a candle was bullish or bearish at some point judging from its high and low values.
The range also reveals the candle’s volatility as seen in the chart below.
On this chart, extended high-low values created a long-range candle which shows increased activity by bulls and bears.
What is Higher High and Lower Low Pattern?
A higher high and lower low pattern is a broadening symmetrical triangle (or broadening wedge).
You could also call it an inverse symmetrical triangle pattern.
Here’s an example of a broadening wedge on the Bitcoin/USDT 6-hour chart.
The breakout direction of this pattern can be upwards or downwards.
Why is that?
It’s because the formation is creating new highs which hint sellers are not selling for peanuts.
But then there are also willing buyers paying more for the same virtual asset.
In this case, the asset could be Bitcoin, Ethereum, Matic, Solana, etc.
On the other hand, the lower lows of the pattern hint buyers are getting in even at lower prices.
And that doesn’t show the market is as bullish as it had earlier hinted.
At this point, we can say there’s a struggle or indecision between bulls and bears.
That’s until the party whose action has a higher intensity gains a upper hand.
.This win is seen either by a breakout above the resistance line or below the support line.
And you’d agree the bulls are in control if price trades above resistance.
Higher Lows Into Resistance
Higher lows into resistance is a bullish signal.
This pattern is found in ascending triangles, rising wedges, rising channels, symmetrical triangles, and so much more.
It’s bullish because price is steadily ascending into a level.
However, the resistance’s mobility determines what could happen.
This is why a static resistance could propel price upwards while a dynamic one could tank price.
The breakout on a static resistance is due to more pressure being applied to a particular level or zone.
This is not the same as a dynamic resistance since buying pressure is spread across various highs in the formation.
The degree of rise into resistance may also be too steep and unsustainable.
Do you get the concept?
Envision a wall that is constantly hit with a hammer. At some point, it’ll break down due to applied force.
In contrast, that breakdown may not yield if the same amount of force is applied to different corners of the wall.
The Bitcoin/USDT 15-minute chart highlights higher lows into the same resistance level.
This led to an upward break of the level.
Lower Highs Into Support
Patterns like the falling wedge, falling channel, and descending triangle feature lower highs into support.
It may be dynamic or static support.
Lower lows into static support could lead to its downward break.
This break can be tied to the increased selling pressure mounted on the region.
A formation of this type is useful if you’re expecting a downward breakout.
On the other hand, an upward break may occur if price makes lower lows into dynamic support.
Here’s a Bitcoin/USDT 15-minute chart as an example.
The chart shows lower highs into support of the same lows.
There’s a 3 bar play candlestick formation after the break. It is a continuation pattern hinting at a further decline.
This second example of a Bitcoin/USDT 4-hour chart can be compared with the first.
Price is making lower lows which makes the selling impact on support less powerful.
Think of it as a level not breaching because it showed less resilience.
How Do You Trade Higher High and Lower Lows?
Here are simple tips on how to trade higher highs and lower lows.
- Determine the trend.
- Draw a trendline.
- Trade the pattern.
- Know the breakout direction.
1. Determine the Trend:
A higher high and lower low would often play out as a continuation pattern.
In an uptrend, it might continue the upward move. And in a downtrend, it could tank prices further.
But that’s not to say this pattern cannot reverse a trend.
The point is, a higher chance of trend continuation means it’s ideal to know the current trend before trading.
This trend could be spotted on a lower or higher timeframe depending on your trading strategy.
Lower timeframes between M3 and M15 would help you scalp. While those between M30 and H4 would prove useful in swing trading.
I don’t really recommend using the 1-minute timeframe not unless you can make trading decisions within seconds.
2. Draw the Pattern:
Connecting the highs and lows with a trendline will map out the pattern.
And once you do that, you’ll be able to trade the price action within it.
You can tell it’s a higher high and lower low formation from the first two highs and lows.
Simply place a line on the first two highs and then extend it. This area is the pattern’s resistance.
A support line can be drawn on the first two lows.
Wait for price to retest one of the lines as support or resistance before making an entry.
3. Trade the Pattern:
You have the choice to make long or short entries in the pattern.
There’s no certainty on the direction of break, hence you need good risk management in place.
Risk is managed with the use of stop losses.
If you trade futures on Binance, Kucoin, or FTX, it may also be useful to use a low leverage size.
The same can be said about giving your trades enough free margin to run.
Now take a look at some higher high, lower low trading strategies to employ:
Strategy 1: Long from Support to Resistance
You can long from support and take profit at resistance.
Your long entries are signaled by bullish candlesticks and chart patterns in the region.
You may find candles such as hammer, bullish engulfing, morning star, dragonfly doji, etc. at the support zone.
These candles could combine to create patterns such as the double bottom, rounding bottom, inverse head & shoulders, etc.
Make an entry once you’ve confirmed these bullish signals. And then place a stop loss below the support level.
Strategy 2: Short from Resistance to Support
Another way to trade the higher high and lower low is to short at resistance and take profit at support.
Short entries can be made on bearish candlesticks like the shooting star, hanging man, spinning tops, etc.
You may also spot a bearish engulfing, dark cloud cover or evening star formation.
These candles could combine to form a double top, rounding top, head and shoulders pattern, etc.
Make a short entry on these candles.
You know it’s time to take profit when bullish candles spring up at the support zone.
Strategy 3: Trade the Breakout
There’s also the option of waiting for a breakout before making entries.
This option is profitable since price could travel at least the height of the symmetrical triangle.
A good way to leverage on the breakout and reduce risk is to wait for a retest of the level.
The retest may happen sometimes and other times, price may keep rallying before taking a rest.
But how do you know which direction price will breakout?
The next section will give you clues to pay attention to.
How to Determine Higher High Lower Low Breakout Direction
The higher high lower low breakout direction can be predicted in the following ways:
1. Check the Volume Pattern:
Another way to know which direction price will breakout is to pay attention to volume movement.
This volume pattern indicates where pressure is higher.
For instance, if volume increases as price rallies but reduces when price retraces, there could be an upward breakout.
But if volume declines as price rallies and increases during descents, there could be a downward break.
This knowledge helps you anticipate a break in the right direction.
In the Bitcoin/USDT 5-minutes chart below, volume tended to rise with the ascent in price.
The volume also declined with the descent in price.
This pattern hinted at an upward breakout.
Note that several factors influence price performance. Hence, a breakout based on volume may not always play out how you expect.
2. Check the Pattern Near Key Levels:
Formations often have other patterns within them.
These internal patterns can either give bullish or bearish signals. And with that, you can predict the breakout direction.
Let’s take an example.
Imagine price is forming an ascending triangle close to resistance.
This is a bullish pattern that could trigger an upward breakout from the main pattern.
Other bullish patterns that may form close to resistance include double bottom and inverse head and shoulders.
The support of these patterns provides a place to set your stop.
Another instance is if there is a descending triangle at support, it could cause a downward break from the pattern.
Check the example below:
It’s the same Bitcoin/USDT chart in the first section. However, I moved to the 1 -minute timeframe to see the pattern at resistance.
And this pattern is a bull flag.
A breakout of the flag signaled a long entry. The flag’s support was used as a stop loss region.
How Do You Trade Lower Lows?
You can trade lower lows independently.
Here are some tips.
- Use an indicator.
- Use a trendline.
1. Use an indicator:
A moving average indicator will often act as resistance to price in a downtrend.
So if you’re dealing with lower lows, I’ll like to believe the trend is down even though not in all cases.
Be that as it may, enable the SMA 50 or EMA 50 on your chart.
You could also use the SMA 20 or EMA 8 to spot pullbacks to the moving average.
Your job is to short the pullbacks to these MAs.
That’s because the MA area will act as strong resistance to price since selling pressure is at its highest around that region.
It’s also important to spot bearish candlesticks at the MA’s resistance before taking the short.
Here’s an example using a Bitcoin/USDT 8-hour chart.
The EMA 50 often acts as resistance in this downtrend. Price rejected the level or never closed above it.
As such, future pullbacks to the EMA present a good shorting opportunity. A stop can be placed above the resistance to cut losses.
2. Use a Trendline:
The traditional way of doing things is with a trendline.
Thus, you won’t go wrong mapping a line on the highs of the descent.
The Bitcoin/USDT 4-hour chart below is an example of short entries that could be taken using the trendline.
On the other hand, using a trendline will enable you to spot breakouts and retests on the trendline.
As such, if a trend reversal is about to occur, you’ll be among the first to know.
Trends also continue that’s why you could also draw a support line at the lows.
A breach of this support line hints bearish momentum is on the rise.
Higher High Lower Low Examples
Here are some higher high, higher low examples.
They’ll improve your understanding of these formations.
Here’s a dollar index (DXY) 4-hour chart.
It shows a change in trend hinted at by the first lower high and lower low.
Thus, the preceding trend was up before a change in structure.
What’s unique about the chart is the first candle close below the trendline. This bearish close confirmed the trend is changing.
The Bitcoin/USDT 3-hour chart below shows higher highs and lower lows acting as a continuation pattern.
The continued trend is downwards.
Were there clues that price will keep falling after this consolidation? Yes, there were!
Take a closer look at the chart.
One of the earliest signs is price dwelling at the support zone hinting it really wants to trade in that direction.
The second clue was price’s partial rise which didn’t even make it near the resistance zone.
The last clue is the high momentum candles into the support line. Smaller candles would’ve helped reverse the move.
This high momentum into an area of value led to the support’s breach.
And even though the third candle closed as a hammer, it was still below the support line.
Frequently Asked Questions
Here are answers to some frequently asked questions.
1. What is a Trend Reversal?
A trend reversal occurs when the structure of the market changes.
This structure is defined by the lows and highs.
As such, a higher high and higher lows structure is an uptrend.
The uptrend changes when price starts creating lower highs and lower lows, which is a downtrend.
A downtrend reversal also changes when price creates a higher high and higher low.
So you’ll agree that these trends interchange.
The Bitcoin/USDT 15-minute chart below shows a short-term trend reversal.
It was a downtrend before its end was signaled by a trendline breach and higher low.
The inverse head and shoulders pattern was also a dead giveaway of the trend change.
Although price has created a lower high and lower low, the uptrend is still intact.
That’s because the degree of rise was too steep, to begin with. The decline is a corrective move in the uptrend.
The second image below indicates how the uptrend is still in play. It has the same width as the sideways trend.
It becomes a trend reversal when a candle closes below the trendline.
2. What is Lower Lows and Lower High?
Lower lows and lower highs is a formation created in downtrends.
It means a period of consistent fall in prices. It could be a fall in Bitcoin or your favorite altcoin’s price.
That being said, this downtrend might change at some point to a sideways trend.
The trend may resume its fall or reverse into an uptrend.
The Bitcoin/USDT 15-minute chart below shows a change from a downtrend to a sideways trend and then an uptrend.
3. How Do You Trade Lower Lows and Lower Highs?
Lower lows and lower highs mean you either have a falling channel or a falling wedge pattern.
The breakout direction of both patterns is upwards.
As such, you can either trade within the pattern or wait for a break of the resistance line.
If you’ll like to trade the pattern, you can long at support or short at resistance.
It’s less risky to long at support since price could rally in the near future.
Irrespective of which technique you choose, ensure to use a stop loss.
4. What is HH HL LH LL in Forex?
HH HL LH LL is an abbreviation for higher high, higher low, lower high and lower low.
It represents trends in the Forex, crypto, or the stock market.
5. Are Higher Lows Bullish?
High lows are bullish since value is increasing,
Moreover, bulls or buyers are paying more for the asset.
The price tends to increase since the same level of support is not hit.
Rather, diagonal support is created from the rising prices.
Higher high, lower low pattern trading strategy is a simple technique.
Learning the strategy is a good way to advance your trading skills.
Interestingly, beginners and professional traders can master its use.
These highs and lows are also the basic elements of every chart.
And trend reversals are early hinted at by these formations.
All of these mean you need to know the reversal trading strategy to make the most profit.
Try out the tips outlined in this guide and practice as much as you can.