Trendlines
Trendlines are diagonal lines that connect price points, creating dynamic support and resistance. They help visualize and ride trends.
Unlike horizontal support/resistance, trendlines move with price. They capture the momentum of a trend and show when that momentum changes.
What is a Trendline?
A trendline is a straight line:
- Connecting two or more price points
- Extending into the future
- Acting as dynamic support or resistance
Drawing Uptrend Lines
For an uptrend:
- Connect two or more higher lows
- Line slopes upward
- Acts as support for the trend
How to draw:
- Find the lowest point where uptrend started
- Connect to a subsequent higher low
- Extend the line forward
- More touches = stronger trendline
A trendline needs at least two points to draw, but three or more touches confirm its validity.
Drawing Downtrend Lines
For a downtrend:
- Connect two or more lower highs
- Line slopes downward
- Acts as resistance for the trend
How to draw:
- Find the highest point where downtrend started
- Connect to a subsequent lower high
- Extend the line forward
Trendline Touches
| Touches | Significance |
|---|---|
| 2 | Minimum to draw (tentative) |
| 3 | Confirmed trendline |
| 4+ | Very significant level |
Each touch that holds makes the trendline more reliable.
Using Trendlines
In Uptrends
- Buy when price touches uptrend line
- Place stop below trendline
- Ride trend until trendline breaks
In Downtrends
- Sell/short when price touches downtrend line
- Place stop above trendline
- Stay short until trendline breaks
Trendline Breaks
When a trendline breaks:
| For Uptrend Break | For Downtrend Break |
|---|---|
| Watch for new lower low | Watch for new higher high |
A trendline break doesn't mean immediate reversal. Price often consolidates before the next move.
Common Trendline Mistakes
| Mistake | Problem |
|---|---|
| Drawing through bodies | Should touch wicks/extremes |
| Too steep/shallow | Unsustainable angle |
| Too many lines | Creates confusion, not clarity |
Drawing Best Practices
- Connect wicks – Use price extremes, not bodies
- Two tests minimum – Three or more is better
- Don't force it – If it doesn't fit naturally, it's not valid
- Adjust if needed – Minor adjustments are okay as new data comes
- Use higher timeframes – More significant
Trendline Channels
When you draw parallel lines:
- Upper line connects highs
- Lower line connects lows
- Creates a "channel"
Price bounces between channel boundaries:
- Buy at lower boundary
- Sell at upper boundary
- Breakout from channel signals new trend
Speed Lines
Trendlines at different angles:
- Steep lines break faster
- Gentle lines last longer
- After break, shallower line often forms
When a steep trendline breaks, look for a new, less steep trendline to form. The trend might continue at a more sustainable pace.
Key Takeaways
- Uptrend lines connect higher lows (support)
- Downtrend lines connect lower highs (resistance)
- More touches = more reliable
- Breaks signal potential trend change
- Keep it simple – too many lines create confusion
Module complete! Next, let's learn about technical indicators that can confirm your analysis.
Sources & Disclaimer
- Standard Market Conventions for Technical Analysis
- BSE/NSE Charting and Analysis Guides
Note: Any benchmarks (e.g., "Good ROE is > 20%", or specific P/E ranges) are simplified industry heuristics for educational purposes. True evaluation depends on specific industry context, market cycles, and individual company circumstances.