Trendline

1. Overview of Trendlines

A trendline is a straight line drawn on a price chart that indicates the direction of price movement, connecting the highs or lows of prices over a specific period. Trendlines are the most basic and effective tools used to visually understand which direction the market is moving (up, down, or sideways). When analyzing price fluctuations, drawing trendlines helps identify support and resistance, and determine entry points and exit points for trades.

2. Types of Trendlines

1. Uptrend Line
   • If highs and lows are progressively getting higher, you can draw an uptrend line.
   • Connect the lower lows and lows to form a line that supports the trend.
2. Downtrend Line
   • If highs and lows are progressively getting lower, draw a downtrend line.
   • By connecting the higher highs and highs, it becomes a line indicating the upper limit of the trend.
3. Sideways (Range) Trendline
   • When the market is not trending upwards or downwards, use horizontal trendlines to understand the price range.
   • Primarily functions as support and resistance.

3. How to Draw Trendlines

1. How to Draw an Uptrend Line
   • When the price forms highs and lows and the price is rising, draw a line connecting two or more lows. This is the uptrend line.
2. How to Draw a Downtrend Line
   • When the price is falling and lows and highs are decreasing, draw a downtrend line by connecting two or more highs.
3. Trendlines as Support and Resistance
   • An uptrend line becomes support, and a downtrend line becomes resistance. These are points where the price is likely to bounce.

4. How to Utilize Trendlines

1. Trend Confirmation
   • By using trendlines, you can confirm the direction of the current trend. If an uptrend line is formed, it serves as a basis for considering maintaining a buy position. If a downtrend line is formed, it serves as a basis for considering maintaining a sell position or opening a new sell position.
2. Determining Entry Points
   • If the price breaks the trendline, you can start a trade as a sign of reversal. Strategies such as selling when the price falls below the uptrend line or buying when it rises above the downtrend line are possible strategies.
3. Determining Exit Points
   • There is also a strategy of exiting a trade when you determine that the trend is changing, by observing where the price is bouncing against the trendline.

5. Practical Examples

• Uptrend
  When drawing an uptrend line, the price may bounce off the trendline each time it touches it. At this time, by entering a trade before the price reaches the trendline, you can trade while managing risk.
• Downtrend
  When a downtrend line is formed, the price may bounce off the trendline from above, making it effective to enter a sell trade after confirming a reversal signal.

6. Precautions and Limitations

1. Use as an Indicator to Measure Trend Strength
   • A trendline is merely a visual indicator and the price may break through the line depending on market conditions. Therefore, it is important to increase accuracy by using it in combination with other indicators (such as RSI or MACD, and other technical indicators).
2. Trendline Breakage
   • The market does not always follow the trendline and the price may reverse after breaking through the line, so it is necessary to avoid overconfidence and strive for flexible trading.

7. Summary

Trendlines are very important tools for visually indicating trends and determining entry and exit timings. They can be used to grasp uptrends and downtrends and develop trading strategies that follow market movements. However, using trendlines alone carries risks, so it is recommended to use them in conjunction with other technical indicators to make more reliable trading decisions.

Fundora's professional traders use trendlines as a basis while combining multiple analysis methods to increase accuracy. Acquire practical trendline analysis skills with Fundora.