8 Points to Remember while using Trend Lines

8 Tips while using Trend lines

1. Trend lines also reflect the major price levels as similar to support and resistance price levels; the major difference between these two are the initial price points required to build the lines. A support and resistance price level can be established by any single price point, but in order to establish a trend line more than a single price point is required, two are basic and more than two are highly preferable.

2. Trend lines are of three types; two are diagonal lines and one is a horizontal line, but mostly, trend lines with slope i.e. diagonal lines are used to define the trend direction and its speed.

3. Bullish (Up Trend)n is a diagonal trend line which is drawn at the time when price is advancing and has completed a minimum of 2 bullish price swings. A bullish upward trend line is drawn by connecting the price of higher swing low’s i.e. higher price swings bottoms.

4. Bearish (Down Trend) is a diagonal trend line which is drawn at the time when price is declining and has completed a minimum of 2 bearish price swings. A bearish downward trend line is drawn by simply connecting the price of lower swing high’s i.e. lower price swings tops.

5. Side to Side (Channel Ranging Sideways) is a horizontal trend line which is drawn at the time when price is moving in a fixed range i.e. when price moves inside a box, repeating to make similar high’s and low’s. A sideways trend line is drawn by simply connecting the price of similar swing high’s and similar swing low’s.

6. By continuously increasing number of times a trend line is tested, it becomes more important and stronger.

7. Prices may sometimes penetrate, but they should not close in the opposite direction of the trend line i.e. the price should not intersect (cut across).

8. Do not ever try to plot a trend line by adjusting it according to the market prices. An adjusted trend line is not a valid trend line.

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