Trend lines are diagonal support and resistance lines drawn on a course. Traders can use these trend lines to find an entry or exit point at an early stage.
Trend lines can be compared with support and resistance lines. However, trend lines are added diagonally (running up or down). Like support and resistance lines, trend lines form the basis of technical analysis and are applied by the most experienced investors in the world in the forex, equities and cryptocurrency markets.
Basically, trend lines are very similar to support and resistance lines. View the photo above to get an impression.
We can draw trend lines in two different ways
- In an upward trend
- In a downward trend
As you probably already suspect, a trend line is drawn upwards in an upward trend as seen in the photo above.
An upward trendline is drawn from the lowest points of a trend and a downward trendline is from the highest points of a trend.
Trend lines are always applied to financial charts and provide insight into supply and demand. Of course, upward trend lines provide information about increasing purchasing power (demand is greater than supply) and downward trend lines about decreasing purchasing power (supply is greater than demand).
Now that you know what trendlines are, we will explain further how to detect and apply them.
How do I find trend lines?
Upward and downward trend lines can be found by searching for two or more of the same retraces. View the photo above for clarity.
Here Vechain is about to hit this line for the fifth time and you can prepare a buy order in advance exactly at this level.
This way, active traders can spot an entry point early. How often the price touches such a line is always different and depends on the market conditions. As long as the price does not break through this line, it is considered a valid entry point.
So look up 2 or more different retraces in the graph. As you can see on Vechain’s chart, you can see that the upward trend line could be drawn after a significant decline. Numbers 1 and 2 gave the opportunity to draw an upward line.
As is clear now, trend lines are used to track up and down running support and resistance levels. As can be seen with Vechain, an upward trend line indicates points where the price is likely to find support and below which the price will not fall. The downward trend line therefore indicates points above which the price is unlikely to rise.
To illustrate a downward trend, see the photo below.
In other words, the market often uses these lines to display information to active traders that the market is changing direction when one of these lines is breached .
An upward trendline will then be broken at the bottom and will drop down and a downward trendline at the top and then continue to rise.
The same goes for normal support and resistance levels.
Trend lines can be drawn by everyone differently, so there is no certainty that a price will change direction after breaking such a line.
In the photo below you can see that the price breaks through an upward trend line, but soon after that the price continues to rise again.
So do you want to trade purely through trendlines? Then I will keep a little win rate at the beginning after breaking one of these lines until you have a little more knowledge.
Whether you are a novice or experienced day or swing traders, understanding and accurately executing trendlines is imperative. Practice well without actually investing real money before deciding to trade with it.
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