Many of the traders think that the market is entirely unpredictable which is not true enough. By applying certain technical techniques one can predict the market trend to some extent. Today’s topic trendline trading is one of the most widely used simple techniques, comes under the technical analysis part. Plotting trendlines on the price action can provide you hints of upcoming trends. Previously, we have discussed on the price action, you may check it out from our site. From this content, you will get a basic idea regarding what trendline trading is and the usage of it. So, let’s begin with the definition of the selected topic.
To make profitable trades, understanding plotting of the trendlines is important. The name itself defines its objective. Trendlines are always the easiest way to confirm an upcoming trend. Before step into further discussion, one thing should be clear that trendline is not similar to indicator or oscillator based study. Traders have to draw it by joining a series of price together. The plotting of trendline does not happen in an abrupt way. There are certain steps by which one can draw an accurate trendline to identify the current and upcoming trend. In simple words, trendlines emerge when traders can connect two highs or two lows together.
There are the variety of ways by which traders work on the strategy. All the steps are stated below with attached images:
After connecting lower highs price together (connect at least two points), a trendline appears. When price breaks the plotted trendline (forms by connecting lower highs), traders get a hint of an upcoming bullish trend.
The above chart is taken from Zerodha kite charting platform. Here, the downtrend line is connected with high points, the second high is below the first high. After the breakout of the up-trend line, price moves upward direction.
Uptrend line is just the reverse of downtrend line. The uptrend line appears after connecting the two higher lows price points. It gives an indication of an upcoming bearish trend after price breaks the line.
Here, in the above image, the uptrend line is connected with the higher lows price point. From the breakout point of the uptrend line, the market reverse towards the bearish trend.
Trendline use not only to find out the trend but also to sure about the support level. Find out the exact support for any stock, helps traders to fix the entry-exit point. You may check out our article on the support-resistance for further information.
In the above chart, after breaking the downtrend line, price moves towards a bullish trend but bounce back to check the trend line. In simple words, price take support at the trendline then moves in the upward direction.
Some traders don’t use indicators or oscillators, works only with the trendline. The trendline is the most useful tool in technical analysis in many ways. There are no such rules that you have to work with single tradeline. You can plot multiple trendlines to find out the market movements. An image is attached below:
Here, check out the multiple trendlines. Notice the red downtrend line, here price takes multiple support and resistance at the trendline. Sometimes, by using a single trendline trader can’t interpret the whole situation in a market. For that reason, there is a requirement of multiple trendlines. The highlighted area are some of the examples of support-resistance on the trendlines.
Points to Remeber
- Try to avoid steep slope trendline, fall or rise of a trendline should not be sharp. A strong trendline should always be more slanted.
- In case of a weak trendline, the price points appear close while in strong trendline, price points are evenly spaced.
- You can apply the trendline on oscillators too in the same way as applied on price.
We have decided to provide our readers a FREE download link for using the DeMark trendline trading mt4 indicator. You can get it by clicking the link below:
From there, you will instantly get the automated trend lines for trendline trading on MT4 (Metatrader).
Therefore, I hope this article will help you to understand the topic.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.