What is a Trendline?
A trendline is drawn on your chart to help predict the general direction of price. They can also help you spot reversals. The green line below the chart is the trendline.
bullish trend line
Trendlines can also help identify good entry and exit points, as well as where to place stops.
Wow! It's so simple, isn't it many uses?
Well, not really. They're pretty good, but, like any form of analytics, they won't get you anything by themselves. However, they do make for a great addition to your trading arsenal!
The main problem with trendlines is getting them on the chart. At first, this can be a little daunting, but it's easy to master. In this section, you'll learn how to place trendlines on your charts and do something with them!
place trendline
There are two main types of trendlines: bullish and bearish.
A bullish trendline has a positive slope and is formed by connecting two or more lows. The second swing low must be higher than the first swing low. Check out the example:
Placing a trendline on a bullish trend
A bearish trendline is formed by connecting two or more highs. The second swing high must be lower than the first swing high.
Placing a trendline on a bearish trend
So placing lines is very easy. All you need to do is:
Identify the low/high points of the two swings.
Draw a line to connect them.
you have it! You now have a trendline on your chart. But wait for another newbie. Even though you can place a trendline based on two swing lows/highs, it hasn't been determined until it hits the trendline a third time.
Third Trendline Bounce
Once the trendline is placed, and a third bounce is encountered, it becomes active. The price should now find support or resistance at the trendline. It should strive to push boundaries. If the price does break below the line, it usually means the trend is over.
Trendline Breakout Trading
Trendlines can be placed on all time frames, but are more effective on longer time frames. Also, the longer a trendline is active, the stronger it will become!
Alright, so you can now answer the question "What is a trendline?" – Next, we will continue to use them!
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