A Trend Line is a chart pattern defined as a series of highs or lows that form a straight line.
It is formed by connecting two or more price points with a straight line.
The purpose of trend lines is to identify historical trends in price movements and indicate support and resistance levels.
In technical analysis, it is one of the fundamental building blocks of trend channels, wedges, flags, and triangles among other chart patterns.
Use trend lines:
- Identify and Confirm Trends
- Predict support and resistance levels
Trend lines can be composed of high points (resistance) or low points (support).
To construct a trendline, simply connect the high or low prices on the price chart. The resulting line is the trend line .
Trend lines often extend forward to identify sloping areas of support and resistance.
Trendlines are actually visual representations of support and resistance levels.
Only two points are needed to draw a trendline, but the more points used to construct the trendline, the stronger the trendline will become.
Types of trend lines
There are two types of
trend lines: rising and falling .
Uptrend Line
A Downtrend Line or Downtrend Line is the exact opposite of the uptrend line.
It is formed by connecting highs, with the most recent high being lower than the previous high.
The downtrend line extends into the future and can be considered a resistance level.
A negative slope line of
acting as price action resistance indicates that supply (more sellers than buyers) is increasing.
As long as price action remains below this line, we have a bearish trend.
Trend Line Breakout
A popular way to trade trend lines is if the price bounces upward from the trend line’s support and downward from the trend line’s resistance.
Price will often retest a sloping trendline multiple times until it breaks out.
When a trendline is broken, especially on heavy volume, momentum will push the price significantly above/below the broken trendline.
When this happens, it signals a trend reversal.
Traders have different opinions on how far to connect price points and whether the trendline should be connected to the shadow or body of the candlestick.
No matter what method you use to construct your trend lines, just know that all trend lines will eventually be broken.
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