What are Trend Lines in Trading?
Trend lines are probably the most familiar and most used basic charting technique for technical analysis in
trading.
They are fundamental to technical analysis and about as accurate as any other charting technique if done
correctly. Many traders draw them inaccurately or try to make them fit into what they want them to be, instead of letting the market speak for itself.
Trend Lines Example
Uptrend lines are drawn along the bottom (valley) of support areas. This is called an ascending trend line:
Downtrend lines are drawn along the top (peak) of resistance areas. This is called a descending trend line:
How to Draw Trend Lines
Drawing trend lines is easy. Just connect major tops or bottoms on your chart with a line. That’s really all there is to it.
Check out another illustration of both types of trend lines:
Types of Trends
Essentially, three types of trends will show up on your charts:
1. Uptrend (higher lows)
2. Downtrend (lower highs)
3. Sideways trend (ranging)
Important Notes on Drawing Trend Lines
1. Two tops or bottoms are needed to draw a trend line.
2. Three tops or bottoms confirm a trend line.
3. Steeper trend lines indicate a less reliable trend and an easier one to break.
4. Trend lines become stronger the more they are tested.
5. Never force trend lines to fit the market. Let the market speak for itself.
Add comment
You must be logged in to post a comment.