POWER OF TRENDLINES

TRENDLINE

WHAT IS TRENDLINE?

A trend line may be rising,falling or horizontal (flat) trend line.These three types of trend lines represent three trends namely,up trend,down trend and side ways. with the violation of trend lines, we may see a reversal in trend.

EXAMPLES OF TRENDLINES

IMPORTANCE OF TRENDLINES

•       A trendline is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.

A trendline helps identify the trend as well as potential areas of support and resistance. 

•       Trend lines are an important tool in technical analysis for both trend identification and confirmation.

•       Trend lines also offer a simple and widely used technical analysis approach for timing entries exits when trading.

•       You should always remember that the more number of times the price touches a trend line.the more significant and valid that trend line becomes.

•       The steeper a trend line angles,the less reliable it becomes .

•       The length of the trend line is another important factor in its reliability ,Longer the length of a trendline,the more reliable it is.

•       An up sloping and down sloping trend line along with rising volumes confirms the reliability of the trend line.

•       Trend line provides reference for placing stop loss. A stop loss should be placed atleast 3% below or above the trend line after the occurrence of the break out or break down.

UPTREND LINE

•       An up trendline   has a positive slope and is formed by connecting two or more low price points.The second low must be higher than the first one for the line to have a positive slope. Up trend line act as a support for the price and indicate the that the power of the bulls is increasing.

•       So long as the price remains above the trend line, the uptrend is considered as solid and intact.

•       The price below the uptrend line indicates that the bulls are growing weaker and a change in trend could be imminent.

DOWN TREND LINE

•       A down trend line has a negative slope and is formed by connecting two or more high price points.The second high must be lower than the first one for the line.

•       Down trendline act as a resistance to the price from moving higher.

•       As long as prices remain below the down trend line,the down trend will remain solid and intact.

VALIDATION OF TREND LINE

Trend line takes two or more price points to draw a trend line.The number of points used to draw a trend line, the greater is the validity attached to the support  or resistance level it represents.

The general rule in technical analysis is that it takes two ponts to draw a trendline and a third point confirms its validity.

TREND CHANNELS

You can create a trend channel by drawing two parallel straight lines adjacent to the trend line,one of them joining the price highs and the other joining the price lows.

HOW TO TRADE IN TREND CHANNELS

•       In up trend channel, a sell order may be placed below the upper line and stoploss order below the lower trend line.

•       In down trend line channel, the sell order should be placed above the lower trend line and the stop loss above the upper line.

HORIZONTAL TRENDLINE