Regarding technical analysis, trend lines play a major role in both trend identification and confirmation. By employing trend lines, all traders can identify markets with an opportunity to buy or sell. This is one such straight line that connects two or more pricing points. Later on, it extends it as a support line or resistance in the future.
Importance of trend lines for technical traders
Beginner and professional traders alike have increasingly become aware of trend lines as they have grown in importance over time. Many traders in the market are using it both as a resistance and as a support. When you are a newbie and using a trend line for the first time, you should never try to fit it into any situation.
If it does not fit into a candlestick chart, there is no point in drawing a trend line on a candlestick chart. It will only lead you astray. It is equally important to follow a few principles during resistance and support as well.
For a technical trader, trend lines are divided into two main types, namely:
- Uptrend line
- Downtrend line
Now let’s discuss each one of them separately for better guidance:
If a trader wants to draw a trend line within an uptrend, he should have at least two lows attached to the straight line.
In the condition of a downtrend, all the trend lines are drawn just above the pricing level. Major resistance lies along this line. Thus, even if the prices decline, the trader will know more about supply than demand.
Two highs need to be connected with a straight line to draw a trend line in a downtrend. The trend will begin to change if a break occurs above the downtrend line. In short, a downtrend line is just associated with the downfall of any price taking place at any moment.
Trend lines are a trading strategy that plays a major role in the market because traders respect them. If you can draw good trend lines, you are among the lucky traders. In such a case, an excessive number of false breakouts are preventing your progress. Beginners must distinguish between a stronger and weaker trend line.
As a pro tip, a powerful trend line should have a maximum of three touching points. Monster trend lines are those that are based on more than three touching points. Trend lines are one single tool for successful trading in which you should not ignore the rest of the techniques and tools at any cost. If the trend line has broken, then it’s the warning sign that the trend is about to change in the coming time.