Skip to main content

How to draw a trend line?



Trend Lines

As technical analysis is built on the assumption that prices trend, the use of trend lines is important for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance

Some Terminology: -

  1. Higher highs and Higher lows: - When the peaks and troughs are ascending on a chart, and uptrend can be seen happening. In that uptrend, prices can be seen as higher highs and higher lows. As the uptrend is occurring, prices from the previous period that were seen as highs are even higher than they were before.
  2. Lower Highs and Lower Lows: - In contrast to overall increase in value that an uptrend indicates, downtrends can be seen with the descending peaks and troughs that a chart shows. Therefore, the change in prices show lower highs and lower lows. 
  3. Breakout: - A breakout is when prices pass through and stay through an area of support and resistance.
Five steps to draw a trend line: -

Step 1: - Open Technical chart of any stock on any terminal you like. I personally use investing.com.
Step 1


Step 2: - Click on Candle chart or Bar chart.
Step 2


Step 3: - Search for higher lows or higher highs in case of uptrend and Search for Lower lows and lower  highs in case of downtrend.
Step 3


Step 4: - Connect at least two points higher highs or higher lows in case of uptrend and Connect lower highs or lower lows in case of downtrend. we generally connects two points and third points confirms our validity.

Step 4

Step 5: - You can draw multiple trend lines too for finding better support and resistance.
Step 5


Some more trend line tips

  • The more times a stock touches a trend line, the more significant it becomes.
  • It takes two touches to draw a trend line, but 3 to confirm it as being a valid one.
  • The best uptrend are formed at about 45-degree angle.
  • When you connect three or more point in a trend-line, it's considered a "major" trend line.
  • In a down trend, draw the line along the highs of prices.
  • The steeper the trend line, the less reliable it will be.





Labels:

Comments

Post a Comment

Popular posts from this blog

Stock market: Game of Technicals

Author:-   Shailesh Bhardwaj                   ( Student at NIT Kurukshetra) It’s wisely said in the markets that “ What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.”  – William O’Neil” I am writing this article, to explain   all my friends how Technical’s play a great role in equity markets, and how do a single candle can changes Trend .How do we all get fooled by behavior of stock. So, with my experience in equity market I have learned that we have to be extra-ordinary, fast and different from the investors/Traders to make big money in Stock Market which I will explain further Now first discuss about what is TECHNICAL ANALYSIS? At the most basic level, technical analysis refers to the use of price charts and other bits of market information to make investment decisions.  Technical analysts try t...
21 comments
Read more

How do i make money in Reliance Industry in BTST trade?

I am a very small retail investor.I usually don't take any kind of risk 300-400 rupees daily profit is enough for me rather than loosing thousands. Safe trading is the key to earn.For me,Its all about my strategy and how do I protect my stop loss. Generally I gave preference to fundamentally sound stocks to make their charts.Before making any chart i follow price action of that stock every day. My theory is " Keeping Things Simple ". Below  is the chart of reliance industries that i made before trade. Fig-1 So, How do I make it? I opened a Candlestick chart of Reliance industries and uses two hours candle for making my chart.Looking at the chart I found that From Feb 16,2020 to May 7 , 2020 stock is facing resistance at point A,B,C,D as shown in Fig-1.Then, I drew a resistance line by connecting all four point. I also drew a trend line by connecting Point-1 and Point-2 as shown in Fig-1.I traded on reliance on multiple supports and makes money ...
5 comments
Read more