Trendline

What is a trendline?

Trendline is a straight line drawn on a chart through or across the significant limits of any price range to define the trend of market movement.

Trendlines are one of the first technical aspects of the market to be discovered. Technical analysis is based on the fact that the financial instrument prices move in fairly definite trends. Prices trend for financial instrument and for the market as a whole. Technical analysts use trendlines in two ways: first, to identify the direction of the movement of financial instrument prices; second, to determine if and when the movement will change.


How are “up” and “down” trendlines created?

An “up trendline” marks the upward progression of a financial instrument’s price. The line is drawn on the chart by connecting the low points of the financial instrument as its price continues to rise. Each low point is successively higher than the previous low. This progression gives the trendline its upward slope.

A “down trendline” marks the downward progression in the price of the financial instrument. It is formed by drawing a line on the chart connecting the high points of the financial instrument as it continues to fall. Each high point is successively lower than the previous high. This progression gives the trendline its downward slope.







How to use trendlines?

Prices move in trends. Once a trend has been clearly identified, it's likely to continue for a time. Technical analysts look at trendlines for their ability to support price declines or resist price advances.

When prices are moving neither up nor down, trendlines have little importance. Technical analysts, looking for a profitable trendline, will search for ones that slope up or down across the charts. These illustrate prices that are clearly trending either up (as illustrated by an "up trendline") or down (as illustrated by a "down trendline").

A trendline not only shows the trend but it also defines the limits of price swings. If the price dips significantly below its trendline, it may mark a reversal - the end of the trend.
No trend continues forever.