Trend Lines
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Drawing Trend Lines
A trend line is a crucial tool in technical analysis for understanding price movements. Let’s break it down:
Definition: A trend line is a straight line that connects two or more significant price points on a chart. These points can be either highs or lows.
Purpose:
Support and Resistance: Trend lines help visualize support (lower boundary) and resistance (upper boundary) levels.
Historical Trends: They reveal the historical trend of price movements.
Trend lines are a visual representation of support and resistance levels.
There are two types of trendlines: ascending and descending.
Ascending Trend Line (Uptrend):
Connects lows where the most recent low price is higher than the previous low.
Acts as a support level extending into the future.
Positive slope indicates increasing demand (more buyers than sellers).
As long as price remains above this line, we have a bullish trend.
Descending Trend Line (Downtrend):
Connects highs where the most recent high price is lower than the previous high.
Acts as a resistance level extending into the future.
Negative slope indicates increasing supply (more sellers than buyers).
As long as price remains below this line, we have a bearish trend.
Trend Line Breaks:
Price often bounces off trend lines.
Sloped trend lines are typically retested multiple times before breaking.
When a trendline is broken, especially with high volume, prices tend to move significantly above or below the broken trendline.
