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.
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