Trend lines are a visual representation of price moment and trends of the market. It helps to form the price and speed of price movements at different periods. Trend lines are used to identify trends. A trend line is an upward and downward line on a chart indicating movements of prices for a particular period. A trend line connects points to identify support and resistance levels. In technical analysis, the trend line plays a crucial role.
When the uptrend line is drawn along the bottom is support areas.
In a downtrend the line is drawn with top lines is identified as resistance areas.
Rather than focusing on fundamental data of any organization to predict its price value, the past price movements’ help in determining the future market prices. It is widely used in technical analysis.
Points to keep in mind while drawing trend line-
- Major swing points should be identified on the chart.
- Connect the major swing points.
- Adjust the Trend Line in such a manner to get as many touches as possible.
- Steeper Trend Line gives you the clue about the market condition so you can adjust your trading strategy accordingly.
- The Breakout technique of trend line helps you time your entry in a trending Market.
- Trendline will also help you to place a trailing stop loss & ride the gains.
- To identify trends, trend lines are used.
- The directions of trend lines determine the trend.
- A trend line can be formed with the help of two or more price movements.
- Trend line if studied and drawn correctly can help in predicting future price movements.
- Trend lines are the visual representation of price movement’s price trends in the market.