Finding Market Direction: The First Price Action Filter

Risk warning: Direction can flip on any chart, and every example here is education, not financial advice or a trading signal.

Direction is the way price is leaning on your chart: up, down, or sideways. In the first price action lesson, direction was point two of the five-point process. This lesson stretches it out and gives it room to breathe.

You already protect your risk first. The next filter is direction, because trading against it is like paddling a canoe against the Lagoon current. Possible. Fun for exactly nobody. Beginners sink first.

Why direction comes before entries

Price moves in waves, not straight lines. Even a strong uptrend stops to catch its breath many times before it continues.

Know the direction, and you only have to prepare for one scenario. In an uptrend, you wait for pullbacks into support. In a downtrend, you wait for pullbacks into resistance.

Without direction, every candle looks like an opportunity. That is precisely how accounts drain. The market is not paying you per click. Read Trends: Trading With the River, Not Against It.

Mark the last clear swings

Open EUR/USD on H1 and zoom out until you can see several days of candles. Now find the two features that define direction:

• A swing high is a candle peak with lower candles on both sides.
• A swing low is a candle bottom with higher candles on both sides.

Mark the most recent clear ones. "Clear" means the peak or bottom stands out like a sore thumb — not a tiny bump that only exists if you squint and want it to be there.

Then compare. Are the recent highs higher than the older highs? Are the recent lows higher than the older lows? Congratulations, you have just done analysis with your two eyes and no indicator.

The three market states

Every chart sits in one of three states at any moment. Pick one, and stop pretending there's a fourth.

Uptrend

Price makes higher highs and higher lows. Buyers keep stepping in before price falls back to the last low.

Picture a staircase going up in a duplex in Ikeja. Each step rests higher than the one before. A pullback is just walking down one step, not tumbling down the entire staircase.

Downtrend

Price makes lower lows and lower highs. Sellers keep pressing before buyers can recover.

Same staircase, opposite direction, and this time it is not taking visitors upstairs. Each bounce stops lower than the previous bounce.

Range

Highs and lows overlap. Price bounces between a floor and a ceiling without breaking out, and neither side controls the market.

For this series, a range is a no-trade state. You can mark the edges and watch all you like, but beginners lose most often inside ranges, because the edges eventually break and trap whoever arrived late.

A step-by-step direction check

Use the same four steps on every chart so your eyes stay honest:

1. Zoom out. See at least 50 to 100 H1 candles. A close-up view always looks dramatic — that is the trick.
2. Mark the last clear swing high and swing low. Ignore small bumps that do not change the wider picture.
3. Compare the swings. Rising both? Uptrend. Falling both? Downtrend. Mixed? Range or messy.
4. Write one word on your chart or journal: up, down, or wait.

If you cannot pick one word in under a minute, the chart is unclear. Move to the next pair or wait for a new candle to close. Sitting on your hands is a skill, and it pays better than guessing.

One direction per chart, per day, is enough. Re-labelling every hour is how traders talk themselves into weak trades and then blame the broker.

Use two timeframes, not ten

For this series, direction lives on H1 and entries live on M15. That is the whole team.

H1 filters out most noise. Each candle summarises one hour, so a single dramatic M15 candle cannot rewrite the H1 story by itself.

M15 gives finer detail when price returns to your area. The H1 says which side, and the M15 says when.

Adding more timeframes does not add accuracy. It adds contradictions, and you will pick whichever one agrees with the trade you already wanted. That is not analysis. That is shopping for permission.

Pullback or reversal?

A pullback is a temporary move against the trend. A reversal is the trend changing direction. On the live chart, they look identical while they happen.

You cannot know in advance. Nobody can, no matter how confidently the chart is drawn. What you can do is define what would prove you wrong:

• In an uptrend, a new low that breaks below the last higher low weakens the uptrend.
• In a downtrend, a new high above the last lower high weakens the downtrend.

That broken level is your invalidation for the direction part of the plan. If it breaks, the setup is gone — even if you were not in a trade. No refunds, no grudges, wait for a fresh picture.

Candles at an area give the final proof. That is the next filter, covered in point four of the five-point process.

When you should call it "wait"

Choose wait more often than any other label. It is free, it is safe, and it never blows up your account. Skip the chart when:

• Swings overlap: Highs and lows interleave with no clean staircase.
• The trend is old: Price has travelled far from the last higher low or lower high, so pullbacks are risky.
• Only one side agrees: Higher highs but flat lows is not a clean uptrend yet. It is a half-built staircase.
• A major candle just spiked: Big US news around 1:30pm WAT can redraw the chart in minutes. Let it settle before you volunteer as tribute.
• You feel urgent: The urge to be in a trade is emotion, not direction. Read FOMO: The Fear of Missing the Move.

Checking during the London and New York overlap, around 1pm–5pm WAT, gives the cleanest picture for pairs like EUR/USD. Read Trading Sessions and WAT.

Common mistakes

Forcing a trend

Calling a messy chart an uptrend because you want to buy. If the staircase is not obvious, the market has not chosen. You do not have to choose either.

Studying too close

Judging direction on M15 while ignoring H1. A strong M15 fall inside an H1 uptrend is usually a pullback, not a brand-new downtrend. Do not declare a funeral every time someone sneezes.

Redrawing all day

Changing your swing marks every candle. Mark the last clear swings once, and only update when a new swing clearly forms. Your chart is not a live art project.

Trading the range edges early

Buying the floor of a range before any proof. Ranges break eventually, and beginners are usually the ones holding the bag when they do. Wait for a close that supports the plan.

Switching pairs to find a trend

Opening eight charts until one looks tradeable. Check your main pair properly first. One clear plan beats eight half-glances and a headache.

Your practice task

Use replay mode or a demo chart. Do not fund an account for this exercise — nobody is handing out medals for speed.

1. Open EUR/USD on H1 and zoom out.
2. Mark the last clear swing high and swing low.
3. Label the state: up, down, or wait.
4. Name your invalidation: the level that would change your label.
5. Repeat on USD/JPY and one other pair, and compare how each state looks.
6. Screenshot each chart with your labels before the next candle closes.
7. Log every chart in your journal, including the ones you called wait.

Do this for 20 charts. Most beginners discover that half of all charts deserve wait, and that this single label saves the most money. It is the least exciting discovery you will ever be grateful for. Read The Trading Journal and Backtesting: Testing Your Plan on Past Charts.

Next in the series

Direction is your filter, but direction alone is not a trade — a compass is not a destination. The next lesson covers Marking Important Areas: turning swing highs and lows into zones you can actually plan around.

Bottom line: Mark the last clear swings on H1, label the chart up, down, or wait, and let only clean staircases earn your attention. When in doubt, wait — the market opens again tomorrow, and it will not miss you.

Part 2 of the KoboFX Price Action Series. Previous: Part 1 — A Simple Chart Process. Cross-links: Trends, Support and Resistance, Trading Sessions and WAT, The Trading Journal.