tw-stock-trend

name	tw-stock-trend
description	Trend identification for Taiwan-listed stocks — Dow theory structure (HH/HL vs LH/LL), multi-timeframe alignment, strength and phase, pullback vs reversal. Use this skill to answer "is this stock in an uptrend or downtrend, and how strong?" before any entry / exit decision.
category	finance
tags	["stock","taiwan","tw-stock","technical-analysis","charting","indicators"]
keywords	["trend","uptrend","downtrend","Dow theory","higher high","lower low","swing point","ADX","pullback","reversal","break of structure","Wyckoff","趨勢","上漲","下跌","K線","多頭","空頭","回檔"]
related	["tw-stock-technical","tw-stock-chip","tw-stock-fundamental","tw-stock-quant","portfolio-construction"]

Taiwan Stock Trend Identification

"Is this stock going up or down?" sounds simple, but it's the first question every other decision depends on. Get the trend wrong and even perfect entry timing loses money.

When to Use This Skill

• Deciding whether to look for long or short setups on a specific stock
• Reading TAIEX or sector regime before picking entries
• Distinguishing a pullback (still in trend) from a reversal (trend over)
• Sizing positions: full size in clear trends, small in chop
• Validating that a fundamental or chip-flow thesis isn't fighting price action

Pair with tw-stock-technical for the indicator-level detail (MACD, RSI, KD, Bollinger). This skill is the framework above those indicators.

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1. The Definition — Structure, Not Indicators

Indicators lag price. Trend is defined by structure first.

Dow theory in two lines

• Uptrend = Higher Highs and Higher Lows (HH + HL)
• Downtrend = Lower Highs and Lower Lows (LH + LL)
• Sideways = Neither; swings overlap

Uptrend                Downtrend              Sideways
       /\                  \                   /\    /\
      /  \    /\          /\\                 /  \  /  \
   /\/    \  /  \        /  \\               /    \/    \
  /        \/    \  →   /    \\  →          /            \
                       /      \\

What counts as a "swing high / low"?

1. A swing high is a candle whose high is higher than the N candles to its left and right (typically N=3 on daily, N=5 on weekly). Same with swing lows.

2. Filter by significance. On a noisy stock, use a 2–3% minimum move between swings; otherwise every tiny wiggle counts and the structure becomes meaningless.

3. Mark the last two swing highs and last two swing lows. That's all you need to read structure:

   • Last swing high > prior swing high? HH
   • Last swing low > prior swing low? HL
   • Both true → uptrend confirmed
   • Either flips → trend in question

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2. Three Timeframes — Dow's Three Trends

Frame	Horizon	Use
Primary (monthly / weekly K)	Months to years	Strategic direction; long-term position
Secondary (weekly / daily K)	Weeks to months	Tactical entry; medium-term swing
Minor (daily / hourly K)	Days to weeks	Execution timing; short-term scalp

Multi-timeframe alignment

Primary	Secondary	Minor	Action
Up	Up	Up	Full long — strongest setup
Up	Up	Down	Buy the pullback — best risk/reward
Up	Down	Down	Wait — secondary correction within primary up
Down	Up	Up	Counter-trend bounce — small size, fast exit
Down	Down	Down	Full short / cash
Down	Down	Up	Sell the rally — counter-trend retracement

4. The larger frame sets direction; the smaller frame sets timing. Don't open a primary-down trade because a minor frame turned up.

5. Conflicts default to the higher frame. Weekly up + daily down → wait, don't fight the weekly.

6. For Taiwan retail with day jobs, the daily K is usually the action frame, weekly K is the trend frame. Hourly is noise unless you trade actively.

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3. Indicator Overlay — Confirming Structure

Structure alone is enough to identify a trend, but indicators filter noise and measure strength.

Moving average stack

7. The 20/60/120/240 MA stack confirms trend. Bullish stack (MA5 > MA20 > MA60 > MA120 > MA240) = strong uptrend; bearish stack = strong downtrend. Tangle = no trend, look for range.

8. MA240 as primary bull/bear divider. Price above MA240 with MA240 sloping up = primary uptrend; below with slope down = primary downtrend. Crossing MA240 is a structurally significant event.

9. MA20 slope as secondary signal. Up-sloping MA20 = secondary uptrend; flat = range; down-sloping = secondary downtrend. Slope, not just position.

ADX — Is there a trend at all?

ADX value	Meaning
< 20	No trend (range / chop) — trend strategies fail
20–25	Trend forming
25–40	Clear trend
> 40	Very strong (and often near exhaustion)

10. ADX doesn't tell you direction. It tells you whether there's a trend. Pair with structure or MA slope for direction.

11. Below 20 ADX = trade differently. Switch to range strategies (buy support, sell resistance, mean-revert). Most trend-following losses come from forcing trend trades in chop.

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4. Trend Strength — How Convicted Is the Trend?

Strong trend	Weak trend
Shallow pullbacks (3–5% in uptrend)	Deep pullbacks (>10%, near MA60)
Pullbacks die at MA20 / MA10	Pullbacks repeatedly break MA20
Volume rises on impulse, falls on pullback	Volume flat or inverted
ADX rising and > 25	ADX < 20 or falling
Few overlapping bars; clean swings	Lots of overlap; choppy candles
MAs fan out (widening separation)	MAs converge

12. Pullback depth measures conviction. A 3% pullback in a $100 stock that holds MA20 is gold; a 12% pullback that pierces MA60 is a different animal.

13. Volume on impulse vs pullback is the most underused signal. Uptrend with rising-volume rallies and falling-volume pullbacks → real demand. The reverse → distribution.

14. A strong trend can stay overbought for weeks. Don't fade RSI > 70 or KD > 80 in a strong trend; that's where the move is. See tw-stock-technical rule on "indicator saturation".

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5. Trend Phase — Wyckoff's Four Phases

Trends move through a cycle:

Accumulation  →  Markup  →  Distribution  →  Markdown  →  Accumulation
(sideways      (impulse     (sideways         (impulse
 at bottom,     up,          at top,           down,
 quiet)         crowd in)    crowd selling)    crowd out)

How to recognise each

Phase	Price	Volume	Behaviour
Accumulation	Sideways range after a downtrend	Quiet, then occasional spike on lows that hold	Smart money buying; retail bored
Markup	Trending up, HH/HL	Rising on rallies, falling on pullbacks	Retail piles in late
Distribution	Sideways range after an uptrend	High but choppy, big up-down candles	Smart money selling into strength
Markdown	Trending down, LH/LL	Rising on declines, falling on bounces	Retail holds, hopes, eventually capitulates

15. Distribution looks like accumulation at the wrong end. The price action is similar (sideways with big bars); the context (after a sustained rally vs after a sustained decline) decides which.

16. Accumulation often coincides with bad fundamentals; distribution often coincides with euphoric news. Pair this with tw-stock-fundamental and tw-stock-chip to disambiguate.

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6. Pullback vs Reversal — The Hardest Call

In an uptrend, when price drops, is it a healthy pullback or the start of a downtrend?

Pullback (still in uptrend)

• Holds the most recent HL or bounces from MA20 / MA60
• Reduces depth and volume as it goes
• Resumes within a few bars (typically 3–10 days)
• Makes a new HL above the previous HL on the bounce

Reversal (uptrend probably over)

• Break of structure (BoS): closes below the most recent HL → uptrend invalidated
• The bounce that follows fails to make a new HH (only LH)
• Two failed attempts to break the prior high
• Volume profile flips: heavier on declines than rallies
• MA20 turns down and price stays below

17. The single sharpest signal: HL gets violated. That's "break of structure". Below the most recent HL, the uptrend is no longer technically intact.

18. One BoS is a warning, not a verdict. Wait for a second leg down (LH followed by LL) before declaring reversal. Many "BoS" events are false breaks that snap back.

19. The reverse applies symmetrically. In a downtrend, the most recent LH being broken is the warning; a HH after it confirms reversal.

20. In strong trends, "deep pullbacks" can look like reversals but aren't. That's why depth alone isn't enough — combine with BoS and volume.

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7. Range vs Trend — Don't Force a Trend on Chop

The single biggest mistake in trend trading is trading trend strategies in ranges.

Range signals

• ADX < 20
• Price bouncing between two parallel horizontal lines
• MAs tangled (MA5/20/60 within 1–2%)
• Bollinger Bands narrow ("squeeze")
• Volume flat or randomly distributed

21. In a range, switch strategy: buy near support, sell near resistance, mean-revert. Trend signals (MACD cross, golden cross) chronically lose money here.

22. A range often ends in a breakout that becomes the new trend. The transition is hard to see in real time; that's why patient breakout traders wait for the close above the range high (or below the low) with rising volume.

23. TAIEX and individual stocks can be in different regimes. Index ranging while a single stock trends, or vice versa. Read both.

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8. Entry Rules — Trading With the Trend

Once you know the trend direction and strength, the rules write themselves:

24. Enter on pullbacks, not breakouts. In an uptrend, the best entries are pullbacks to MA20 / MA60 / a prior breakout level (now support). Chasing breakouts gets you in at peak emotion.

25. Stop below the most recent HL (in an uptrend) or above the most recent LH (in a downtrend). That's the structural invalidation point — beyond it the trade thesis is wrong.

26. Trail stops along subsequent HLs. Each new HL becomes the new stop level. This lets winners run while protecting against giveback.

27. Size proportional to trend strength. Full size in clear primary up + secondary up + minor pullback alignment. Half size when frames disagree. Skip when chop or against primary trend.

28. Never average down in a downtrend. "Cheap" in a downtrend stays cheap, then gets cheaper. Adds only on confirmed HLs in an uptrend.

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9. TWSE-Specific Notes

29. Red K = up, Black K = down (opposite of US/European charts). Calibrate when reading translated TA material.

30. 10% daily price limit distorts structure analysis. A "limit-up" candle truncates what would be a longer impulse; consecutive limit-ups can mask exhaustion. Look at weekly K for cleaner structure in volatile names.

31. Monthly revenue release (10th of each month, before 23:59) creates predictable jumps — both up and down — that aren't pure technical. Don't read a single post-revenue candle as a structural signal; wait for the second day's confirmation.

32. Ex-dividend dates create technical gaps that aren't real bearish signals. Adjust the chart for dividends (價格還原) or note ex-div days when reading swings. See tw-stock-data on dividend adjustment.

33. First and last 5 minutes of the session are noisy due to opening / closing call auctions. Intraday traders weight 09:05–13:25 mid-session structure higher.

34. TAIEX trend filter dominates individual stocks. When TAIEX is in primary downtrend, ~80% of stocks follow. Lone uptrends exist but are exceptions; default to "wait for TAIEX to turn" unless you have a strong stock-specific thesis.

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10. Common Traps

Trap	Description	Counter
Hindsight trend	"It was clearly up the whole time" — easy to see after the fact	Decide on the last 30 bars visible at the moment
Single-candle reversal call	One big bear candle ends an uptrend in your head	Wait for BoS + LH confirmation
Trend overfitting	Drawing 3 trendlines on the same chart to find one that fits	One per timeframe, max
MA worship	"Price touched MA60, must bounce"	MAs are guides, not laws — combine with structure
Counter-trend hero	Repeatedly shorting a strong uptrend on RSI > 70	Saturated indicators in strong trends are normal
Range as trend	Treating 3 weeks of sideways as the start of a trend	Check ADX < 20; use range tactics
News override	"Earnings beat, must be uptrend now"	News changes fundamentals; trend needs structural confirmation
Stale trend	Calling a 6-month-old uptrend "still up" despite a clear BoS 4 weeks ago	Re-read structure on every entry, not from memory

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11. Pre-Decision Checklist

Before any trade decision, run this top-to-bottom:

• TAIEX: primary direction (above / below MA240, MA240 slope)
• Sector index: aligned with TAIEX or diverging?
• Stock weekly K: HH+HL / LH+LL / overlapping swings?
• Stock daily K: structure direction matches weekly?
• MA stack: bullish / bearish / tangled?
• ADX: > 25 (trade trend) or < 20 (trade range)?
• Most recent HL (uptrend) or LH (downtrend): where exactly, in $?
• Pullback or reversal: any BoS in the last 10 bars?
• Volume on impulse vs pullback: agree with the trend?
• Phase: accumulation / markup / distribution / markdown?
• Entry plan: chase or wait for pullback?
• Stop level: which HL / LH is the invalidation?
• Position size: full, half, or skip?

If you can't answer all of these, you don't know the trend well enough to size up.

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12. Quick Decision Tree

Is ADX > 25?
├── No → range / chop → use range tactics, not trend tactics
└── Yes → there's a trend
    │
    Is MA240 slope up?
    ├── Yes → primary uptrend
    │   │
    │   Is weekly K making HH + HL?
    │   ├── Yes → strong primary uptrend → look for long pullbacks
    │   └── No  → primary up but secondary correction → wait
    │
    └── No → primary downtrend
        │
        Is weekly K making LH + LL?
        ├── Yes → strong primary downtrend → cash / short rallies
        └── No  → primary down but bouncing → counter-trend, small size

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Related Skills

• tw-stock-technical — indicator details (MACD, RSI, KD, Bollinger) that fill in the strength / saturation columns above
• tw-stock-chip — chip flow confirms or contradicts the price-structure trend
• tw-stock-fundamental — fundamentals are the "why" behind a sustained trend
• tw-stock-quant — momentum / trend-following factors backtested
• portfolio-construction — trend strength informs position sizing
• rules/trading-discipline.md — stops, sizing, psychological control