It is a line between two critically highs or lows, helping to determine a prevailing trend. It is an easy yet efficient tool in technical analysis.
To draw a trend line, locate two tops or two bottoms, and connect them. To confirm a trend, you can add a third point.
Depending on their direction, trendlines can be:
When the prices rise, the trendline follows in an ascending manner.
When the prices fall, the trendline follows in a descending manner.
Tips on trendlines
- They are diagonal and never horizontal.
- You can draw the most reliable trendlines in larger timeframes (daily, weekly, or monthly).
- Do not try to fit a trendline to your chart.
- If a price breaks a trendline, it does not necessarily mean that the trend is changing its direction. It can also be a case of a false breakout.
Trendline analysis helps to follow only the useful information on the chart and cut out the slight deviations. It helps to concentrate and learn to see a bigger picture before making any market decision.