Trend Lines

Drawing Trend Lines

A trend line is a crucial tool in technical analysis for understanding price movements. Let’s break it down:

  1. 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.

  2. 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.

Types of Trend Lines

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.

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