Welcome to this week's article ‘TRENDLINES’.
Our topic this week is very important such that without it, TA(technical analysis) is incomplete. Once you are able to draw and analyze a valid Trendline, profitability is not far from you. This article targets mainly new users who don't know about trends. The topic will be explained in detail.
It will explain the following;
What is a Trendline?
Types of Trendline
How to trade the Trendline
Why are they needed
It is a line that shows the trend, its support and resistance, and possible breakouts. Simply put, Trendlines are drawn by connecting at least 2 points on the chart either high pivot or low pivot.
The aim of drawing them is to determine the market’s direction/trend—up, down or sideways, to spot resistance and support levels.
The diagram above clearly shows the support and resistance trend lines in an ascending market. Note that when a trendline is broken, especially with high volume, a trend break, reversal, momentum shift or the beginning of a new trend is nigh.
There are basically 3 trends the market obeys, that we know of. These trends are uncovered using lines that connect in a straight line, touching or close to the pivot points.
Uptrend/Ascending
Downtrend/Descending
Sideways
Ascending Trend line: A positive diagonal line that connects 2 or more higher lows with each successive low higher than the previous low. It creates a bullish uptrend pattern.
Descending Trend line: this line is negative and ticks lower highs. It indicates a bearish (sell) pattern.
Sideways trend line: this line is horizontal, lacking a particular trend as power tussle is equal between buyers and sellers. The price moves within range. The same high and low range is hit often.
How to trade the Trendlines
Upward Trend: The red line is the market direction and the black diagonal line is the Trendline that indicates the support level. Trade the pivot points, i.e when the price is close to the Trendline. A trendline with 4 connections as this is a very strong one.
2. Downward trend: Downward trend marks resistance, where the price bounces down. In case of a trend break, wait for a confirmation candle that will either reverse, or continue with higher momentum so as to position correctly. This Trendline makes it easy to spot such break opportunities.
3. Sideways trend: when the market is consolidating, trends tend to love in range. The trendlines have no clear positive or negative direction. Personally, I prefer my USDT during this period but for the adventures, place scalp trades between defined support and resistance levels.
Why are Trendlines needed
These simple lines when drawn accurately give the correct market trend. Whether too long or short.
Trendlines can serve as your entry or exit point depending on your trade choices. Buy near support and sell near resistance.
Stop loss and take profit orders are placed just outside the trendline.
Trendlines help to sieve out noise on the chart while placing focus on important points where actions actually take place.
Trendline is the primary tool for many technical analysis tools. Almost all of them.
Before a trendline becomes valid, it has to be tested across different timeframes to test its validity. Institutions use Trendlines to gauge general market sentiment.
If a trendline breaks, it could signal a couple of things.
Trend reversal: the current market is about to be toppled. You should consider taking profit and getting out of the trade (if it fails).
Change in momentum: a trend can go beyond the trendline in the same direction. This happens when volume is injected more than before
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