How To Draw Trend-Lines To Identify The Trend?

A trend line is a straight line that connects two or more price points on the chart and then extends into the future which acts as a line of support and resistance. Trend lines are an important tool in technical analysis for both trend identification and trend confirmation.

Trend lines are useful for identifying the potential trading opportunities and initiating the trade on the trendline breakouts and other trading techniques related to the trendline. So the trendline is a basic tool in technical analysis that helps the trader and investor in many ways.

According to the following scenarios, the respective trendline can be drawn.

• Trend Line In An Uptrend

• Trend Line In a Downtrend

Trend Line In An Uptrend

In an uptrend price forms series of higher highs and higher lows structures.

So in an uptrend, an uptrend line has a positive upward slope which is formed by connecting two or more points. Those points are known as Higher Lows.

Price is taking trendline support

While drawing a trendline the second low must be higher than the first low to have a positive slope to a trendline. In an uptrend, the Trend line acts as a support as you can see in the above chart.

As long as the price remains above the trendline the uptrend is considered to be solid and intact. When the price breaks below the trendline it indicates that the demand has weakened and the change in the trend may be soon occur.

Trend Line In a Downtrend

In a downtrend price forms series of lower highs and lower lows. It is called a downtrend. In a downtrend, the price keeps falling successively.

A downtrend line has a negative downward slope which is formed by connecting two or more points on the chart. Those points are known as Lower Highs.

Price is facing resisting

While drawing a trendline in a downtrend the second lower high must be lower than the first lower high to have a negative slope to a trendline. In a downtrend, the trend line acts as resistance as you can see in the above chart.

As long as the price remains below the trendline the downtrend is considered to be solid and intact. When the price closes above the trendline it indicates that the change in the trend may be soon occur.

Trend Line Breakout

Trend line breakout shows that the previous trend is over and a new trend is occurring. But the trendline breakout is only valid if the price closes on the other side of the trendline. Trendline breakouts help traders or investors to initiate potential buying or shorting opportunities.

Change in the trend due to breakout

Change in the trend due to breakout

So, trendlines are a great tool in technical analysis. But you should always pay attention to the price action. Always consider it while drawing a trendline. Use trendline for potential trade opportunities.

Thank you!