What are Higher Highs and Lower Lows?

Key Takeaways

Higher highs and lower lows can be valuable to traders looking to take full advantage of price movements regardless of market conditions. 

A “higher high”, normally abbreviated to HH on charts, essentially refers to a trend in which price reaches ever higher peaks before consolidating, only to return and head higher still. The opposite is the case for a lower low (LL).

These phenomena can form the basis for profitable crypto trading strategies, especially when used in conjunction with indicators which give additional insight into market dynamics.

What Are Higher Highs and Lower Lows?

Crypto price charts exhibit trends common to all forms of financial asset — and these can form actionable trading signals.

In addition to clear highs and lows which are visible on a chart, a cryptoasset can follow trends which feature multiple high and low points contained within them.

When price outperforms by hitting a high, consolidating and then beating that high — either once or multiple times — it is described making “higher highs”. Conversely, making “lower lows” is often a hallmark of a downtrend gaining momentum.

Both scenarios are prime environments for profiting from crypto price action, as both uptrends and downtrends can occur at short notice and involve considerable volatility.

Higher High

A price chart making higher highs is one of the most easily accessible signals in trading thanks to it often being obvious at a glance.

During an uptrend, candle wicks to ever higher levels — especially when combined with period lows rising in step — signal a potentially profitable long opportunity.

The chart below shows an example of a classic series of both higher highs and higher lows on the hourly BTC/USDT chart.

Here, price generates higher highs and higher lows practically without interruption — a calling card of crypto markets when momentum gathers pace. Price wicks higher on each candle, consolidating to close below the local high in most cases before surpassing that high.

Lower Low

Lower lows, as shown in the chart below, can mark a downward trend change — in this case after a new all-time high on BTC/USDT is reached.

Price does not go down in a straight line — lower lows are interspersed with consolidatory or relief phases before new lows hit. 

Toward the end of the downtrend, price fails to make new lower lows, while swing low gets one retest before downward momentum cools.

How to Apply Higher Highs and Lower Lows in Trading

Entering a trade simply because price has made a series of higher highs or lower lows is naturally ill-advised — without inspection of market history and underlying trading conditions, such a trade has little to no guarantee of success.

The key issue at stake is liquidity. In any market, liquidity will build up at certain key levels, and this has the effect of dampening volatility, meaning that high-liquidity zones can more likely initiate a trend reversal.

The chart above shows where liquidity is concentrated around a higher high (HH) structure. This is a trend change in the making, and a trader looking for a short entry would do so after HH has been hit and price is retracing. Once it passes point H, the trade is on — a Limit order is placed at H, where price reverses downward after retesting it but failing to continue to retest HH.

The same strategy, but with opposite moves, would apply to a lower low formation during a downward trend change at a local or macro bottom.

What Are Crypto Counter Trend Trading Strategies?

The above chart provides an example of a corrective phase within a broader trend. These are in fact commonplace, even in strongly-trending crypto markets, as “nothing goes up in a straight line forever”.

As such, even a crypto bull market will see assets enter corrections on the way to higher highs or lower lows, and these provide key trading opportunities.

The so-called counter trend strategy relies on these trend-bucking moves. Counter trend buyers or sellers look to buy lower or sell higher at the end of the correction before the trend resumes.

To execute a counter trend trade, traders employ a variety of instruments which give insight into trend momentum and price strength at relevant levels.

For example, the Relative Strength Index (RSI) could be used to see how overbought or oversold an asset is at a key support or resistance zone. If RSI is extremely low at support, the odds of a bounce are high — a potential counter trend buy setup. 

Counter trend trading is risky and relies on corrections occurring as predicted. Profits are modest as these corrections themselves can be, and since they may not occur at all, traders can get stopped out of their positions.

How To Trade Higher Highs and Lower Lows in Crypto

As can be seen from the examples above, the appearance of swing highs and lows in quick succession does not necessarily imply a trend change or that further highs or lows will appear.

As such, higher highs and lower lows provide only limited information on market dynamics to the observer. 

To turn them into actionable trading signals which are reliable, higher highs and lower lows should be studied along with data from trading indicators. 

A popular choice among TabTrader users is the Relative Strength Index (RSI). This momentum oscillator effectively measures the speed of price changes and uses historical data to determine the extent to which price is overbought or oversold at a given level.

Traders can use RSI to provide context to price moves in a certain range — instead of simply seeing a succession of higher highs or lower lows and concluding that an uptrend or downtrend is gathering momentum.

RSI forms just one of several appropriate indicators to leverage trending markets. These are some of the most popular tools on the TabTrader app, and a full guide can be found here.

Conclusion

Higher highs and lower lows are some of the most common market traits that crypto traders look for when attempting an entry or exit. Their existence provides fundamental insight into market trends, and studying them can allow for profitable trades in either direction.

Swing highs and lows can appear in all manner of circumstances, however, and crypto markets are especially good examples of this thanks to their susceptibility to volatility. 

As such, it is necessary to gather context before entering or exiting a trade simply because price has made a higher high or lower low. This can be achieved through the use of trading indicators which give additional insight into the strength of a given trend.

If studied and used correctly, higher highs and higher lows can allow traders to capture the most profitable parts of a market move.

FAQ

What do higher highs and higher lows mean?

Higher highs can be seen when an asset such as a crypto token reaches ever higher levels while producing increasingly shallower pullbacks during an uptrend. The inverse phenomenon is witnessed with lower lows and lower highs during a reversal.

What is the HH and LL strategy?

Trading higher highs and lower lows involves leveraging pullbacks in order to take advantage of trend changes. Pullbacks from higher highs and lower lows allow traders to place Limit and Stop-Loss orders effectively.

What do higher highs and lower lows indicate?

The appearance of HH and LL patterns suggests a trending market, and its strength can be gauged by using a momentum indicator such as the Relative Strength Index (RSI).