Trendlines will help you spot areas on the chart where supply/demand for a given asset has increased.
The chart above first shows an uptrend line on the EUR/USD currency pair. An uptrend line has a positive slope connecting low points with several connected points rising upwards. Uptrend lines play a supporting role - as long as prices are above them, the bullish trend is intact.
To summarize:
A trend line is a straight line that connects several points on a chart that can be used both to determine trends and to predict the future direction of a trending asset.
line acting as load/resistance line. Trend lines show zones where the forces of supply and demand collide and push prices to move.
A support level is a level where demand for an asset is stronger than selling pressure, preventing prices from falling further. Conversely, a resistance level is a threshold value at which selling pressure is greater than buying pressure.
How to draw trend lines correctly
If there is an uptrend, the first thing you need to do is draw an uptrend support line. Conversely, if there is a downtrend, you should draw a descending resistance line. If you draw an upward resistance trendline with an uptrend, you will not get any relevant information. You can only see a potential reversal of the current trend with an ascending support line. This line will indicate that the previous bull move is no longer valid.
Here are other important criteria to consider when using trend lines.
Time Frames – Higher time frames always produce the most reliable trend lines.
Verification - In geometry you need 2 points to draw a line. In technical analysis you need 3 points to draw a trend line. The more points the line touches, the stronger and more valid the line will be.
Point Spacing – The points used to draw the trend line should not be too close or too far apart.
Overlap – the highs and lows of the candles sometimes overlap the trend line, but it is important that the candle bodies touch the trend line.
– Contact points should always elicit a price response. The psychological reaction of market participants should then always occur when contacting the line.
Angles – The steeper the trendline, the weaker its validity. A very steep trend line usually shows a sharp rise/fall in price that does not offer meaningful support/resistance levels
The chart above first shows an uptrend line on the EUR/USD currency pair. An uptrend line has a positive slope connecting low points with several connected points rising upwards. Uptrend lines play a supporting role - as long as prices are above them, the bullish trend is intact.
To summarize:
A trend line is a straight line that connects several points on a chart that can be used both to determine trends and to predict the future direction of a trending asset.
line acting as load/resistance line. Trend lines show zones where the forces of supply and demand collide and push prices to move.
A support level is a level where demand for an asset is stronger than selling pressure, preventing prices from falling further. Conversely, a resistance level is a threshold value at which selling pressure is greater than buying pressure.
How to draw trend lines correctly
If there is an uptrend, the first thing you need to do is draw an uptrend support line. Conversely, if there is a downtrend, you should draw a descending resistance line. If you draw an upward resistance trendline with an uptrend, you will not get any relevant information. You can only see a potential reversal of the current trend with an ascending support line. This line will indicate that the previous bull move is no longer valid.
Here are other important criteria to consider when using trend lines.
Time Frames – Higher time frames always produce the most reliable trend lines.
Verification - In geometry you need 2 points to draw a line. In technical analysis you need 3 points to draw a trend line. The more points the line touches, the stronger and more valid the line will be.
Point Spacing – The points used to draw the trend line should not be too close or too far apart.
Overlap – the highs and lows of the candles sometimes overlap the trend line, but it is important that the candle bodies touch the trend line.
– Contact points should always elicit a price response. The psychological reaction of market participants should then always occur when contacting the line.
Angles – The steeper the trendline, the weaker its validity. A very steep trend line usually shows a sharp rise/fall in price that does not offer meaningful support/resistance levels