Trendline Support and Resistance
Understanding Trendline Support and Resistance Levels
Trendlines play a crucial role in technical analysis, helping traders identify potential trading opportunities. Letβs delve into the details:
Trendline Basics:
Definition: Trendlines connect two or more price points on a chart, visually representing the trend direction.
Drawing Process:
Identify at least two swing points (highs or lows) on the chart.
Draw a line connecting these swing points to create the trendline.
Extend the trendline into the future for predictive purposes.
Uptrends and Downtrends:
Uptrend:
Connect two or more swing lows to form an upward-sloping trendline.
This trendline acts as a level of support.
Traders consider it a potential buy area when price approaches.
Downtrend:
Connect two or more swing highs to create a downward-sloping trendline.
This trendline serves as a level of resistance.
Traders view it as a potential sell area when price nears the trendline.
GBP/USD Example:
In the chart below, observe how the price of the GBP/USD currency pair has consistently bounced off the trendline support level.
This level signifies a key area of support and resistance.
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