Updated: Mar 11
People have tried just about everything to succeed in trading and believe complex theories give good results.
But simple things work wonderfully well in life and as well as in trading.
A Trend Line is a straight line drawn on candlestick charts by connecting two or more price peaks, which reveals the trend of the script, support, and resistance points, and allows to spot any excellent trade opportunities.
Below are some useful references to draw a trend line:
1. Price Peaks
2. The Slope of the Trend Line
3. The price should respect the Trend Line
You should connect a minimum of 2 peaks to consider it as a valid trend line.
Above is the example of a trend line that connected 4 peaks.
To be precise, it is also called a Support Trend line.
Image 2 shows another example of a trend line that connected 4 peaks.
To be precise, it is also called a Resistance Trend Line.
A trend line can be considered as a powerful trend line when it connects more peaks.
The Trend Line drawn in Image 3 is powerful as it connects 7 peaks.
We should note that when a price shows a decisive break of such a powerful trend line, it will give a quick and big move on the opposite side.
The Slope of the Trend Line
Ideally, the trend lines that show a less-to-medium slope (less than 45 degrees) are the safest options.
Because it is a sign of a healthy trend.
As the slope of a trend line increases, the validity of the support or resistance level decreases.
A steep trend line results from a sharp advance (or decline) over a brief period.
The trend line created from such quick moves is unlikely to offer strong support or resistance level on the price.
Even if the trend line is connected with 3 or more valid points, attempting to take a trade is not a good idea.
Image 4 shows an example of a steep trend line.
It is not a healthy sign of a trend, and most probably, this stock is the victim of operators.
The Price Should Respect Trend Line
Whenever you draw a trend line, ensure price respects the trend line with all its peaks.
Image 5 shows a trend line that is respected by all the peaks of the price. Hence, this is a powerful trend line.