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EP3 Free trading lesson · Chart basics

How to Spot a Trend Reversal:
2 Steps to Read a Trend Change

Spotting a trend reversal is not hard. Understand the trend rules, draw a trendline along the trend, then wait for a trendline break followed by a new trend structure, with step-by-step examples and real gold charts.

By 1TRADER5 min readUpdated 10 Oct 2026
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Warning: Trading carries a high level of risk. This content is for education only and is not investment advice.
01Trend Review

Review the trend rules before looking for a reversal

When does a chart reverse? Many traders ask this. Spotting a reversal or trend change is actually not hard, but you first need to know how to read trends and understand the rules of each trend precisely. Only then can you spot reversals correctly.

For the chart to be in an uptrend or a downtrend, it must meet both rules. If it does not, treat the chart as sideway.
Uptrend

Uptrend rules

1
Price makes a high that is higher than the previous high
2
Price makes a low that is higher than the previous low
Remember: higher highs, higher lows
Downtrend

Downtrend rules

1
Price makes a high that is lower than the previous high
2
Price makes a low that is lower than the previous low
Remember: lower highs, lower lows
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Sideway rule: if the chart does not meet “both rules” of an uptrend or a downtrend, treat it as sideway · Read more about trend basics in EP1 Trends and trendlines

Uptrend, downtrend and sideway rules: higher highs and higher lows, lower highs and lower lows, the basics before spotting a reversal
Uptrend (higher highs, higher lows) · downtrend (lower highs, lower lows) · sideway · tap to enlarge
022 Steps

2 steps to spot a trend reversal

There are only 2 steps to spot a trend reversal:

1
Check the current trend to see which trend it is, then draw a trendline along it
2
Watch for a trendline break followed by a new trend structure
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There are only 2 steps, but they take a lot of skill in reading trend structure. So the next section walks through a reversal slowly, step by step.

2 steps to spot a trend reversal: draw a trendline along the trend, then watch for a trendline break and a new trend structure
Trendline break → new trend structure (point B) · tap to enlarge
03Step by Step

A reversal from uptrend to sideway and downtrend

Let’s look at a trend change from uptrend to downtrend, step by step. Note the dashed line colours in the images: orange = trendline break, pink = break of the low into sideway, red = complete downtrend structure.

STEP 1

Draw a trendline along the uptrend

When you find an uptrend (price makes higher highs and higher lows), draw a trendline along that uptrend.

As long as price stays above the trendline, the uptrend is still strong and you can keep looking for BUY entries with the trend.

Status: strong uptrend
Trendline drawn along an uptrend: price stays above the trendline with no reversal signal yet
Price above the trendline = the uptrend is still strong · tap to enlarge
STEP 2

Trendline break = the trend is weakening

If price breaks below the trendline (orange dashed line), the trend is starting to weaken, so watch for a trend change.

But it is still an uptrend, because price has not broken the “higher low” on the left.

Status: still an uptrend, but weakening
Price breaks below the uptrend line: the trend is weakening, so watch for a change, but the higher low has not been broken
Orange dashed line: trendline break, but the higher low holds · tap to enlarge
STEP 3

Higher low broken = sideway

If price breaks the “higher low” on the left (pink dashed line), the uptrend is broken, because the uptrend rules are no longer both met.

So price around the pink dashed line (point A) has moved into sideway straight away.

Status: sideway
Price breaks the higher low, the uptrend is broken and the chart moves into sideway at point A
Pink dashed line: higher low broken → point A, sideway · tap to enlarge
STEP 4

Lower highs, lower lows = reversal to a downtrend

If price forms a downtrend structure (red dashed line), breaking the previous low (point A) down to point B so that both downtrend rules are met: a lower high and a lower low,

then the chart has reversed into a downtrend.

Status: reversed to a downtrend
The chart reverses from uptrend to downtrend: a lower high, then a break of the low at point A to a lower low at point B
Lower High + Lower Low (point B) = trend changes to down · tap to enlarge
04Real Chart · XAUUSD

A reversal from downtrend to uptrend on a real gold chart

The same rules apply to a reversal from downtrend to uptrend. This example uses the gold chart (XAUUSD) on the 4-hour timeframe.

1) Downtrend line broken, but the LH holds

Price is in a downtrend with a trendline drawn along it. When price breaks above the trendline, the downtrend is starting to weaken, so watch for a trend change. But it is still a downtrend, because price has not broken the LH (Lower High) that is part of the downtrend structure.

Gold chart XAUUSD H4: price breaks above the downtrend line, the trend weakens but the LH holds, so it is not a reversal yet
XAUUSD H4: trendline BREAK, but price is still below the LH · tap to enlarge

2) LH broken, then an uptrend structure = confirmed reversal

When price breaks the LH (lower high) of the old downtrend structure, look for a new trend structure straight away. In this example price formed an uptrend structure, making higher highs and higher lows (HH, HL), so the chart has reversed into an uptrend.

Gold chart XAUUSD H4: price breaks the LH, then makes a higher high and a higher low and reverses into an uptrend
XAUUSD H4: LH BREAK → HH / HL = new uptrend · tap to enlarge

3) The uptrend continues until the next reversal

Price then kept rising with the uptrend, and the uptrend will continue until there is a trendline break and a new trend structure. In other words, you go back to the same 2 steps again.

Gold chart XAUUSD H4 after the reversal: the new uptrend keeps making HH and HL above the trendline
XAUUSD H4: the new uptrend keeps making HH / HL above the trendline · tap to enlarge
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Be careful when reading reversals: a reversal on a smaller timeframe does not mean the larger timeframe reverses too. Always check the trend on each timeframe before you trade.

05Summary

Summary: how to spot a trend reversal

StepWhat price doesTrend statusWhat to do
1Stays above the uptrend line (higher highs, higher lows)Strong uptrendKeep looking for BUY entries with the trend
2Breaks below the trendline, but the higher low holdsWeakening uptrendWatch for a trend change
3Breaks the higher low on the left (point A)SidewayWait for a new trend structure
4Makes a lower high and breaks the previous low (point B)Reversed to a downtrendThe trend change is confirmed

A downtrend works the same way in reverse: a break above the downtrend line = weakening → LH broken = the downtrend structure is broken → HH and HL = the chart has reversed into an uptrend. The key to reading a trend change is that a trendline break is only a warning. Wait for a new trend structure before treating it as a real reversal.

06FAQ

FAQ about trend reversals

How do you spot a trend reversal?

In 2 steps: 1) check which trend the chart is in and draw a trendline along it, 2) watch for a trendline break followed by a new trend structure.

Is a trendline break a reversal?

Not yet. A trendline break shows the trend is weakening, so start watching for a trend change. As long as price has not broken the higher low (in an uptrend) or the LH (in a downtrend), it is still in the same trend.

When does an uptrend turn into a sideway?

When price breaks the “higher low” on the left. The uptrend rules are then no longer both met, so the chart moves into sideway straight away.

How do you confirm a reversal to a downtrend?

Price must complete both downtrend rules: make a high below the previous high (lower high) and break the previous low to make a lower low.

When does a downtrend reverse into an uptrend?

When price breaks above the downtrend line, then breaks the LH (lower high) of the old downtrend structure, and then makes higher highs and higher lows (HH, HL). Only then has it reversed into an uptrend.

If a small timeframe reverses, does the larger timeframe reverse too?

Not necessarily. A reversal on a smaller timeframe does not mean the larger timeframe reverses too, so always check the trend on each timeframe before you trade.

What do HH, HL, LH and LL stand for?

HH is Higher High and HL is Higher Low, used to read an uptrend structure. LH is Lower High and LL is Lower Low, used to read a downtrend structure.

When should you enter after a reversal?

Wait for price to complete the new trend structure first, then look for entries with the new trend. For example, draw the new trendline, enter near the line and place your stop loss on the other side, as in EP1. Do not trade against the old trend just because price broke the trendline.

See all lessons in the free Forex and gold trading course

Risk warning: Trading Forex, gold and CFDs carries a high level of risk and you may lose money. 1TRADER provides information and education to support your own decisions only. The real chart examples use historical data and do not guarantee future results. Read the full risk disclosure.