Trendline
Candlefocus EditorTrendlines are drawn directly onto a chart as a single line showing the direction of a security’s price, enabling traders to clearly see the direction of a security’s price over time. The smoothest line possible is the best fit that a trendline can give; therefore, the more points used, the more accurate the trendline will be. Furthermore, trendlines provide the trader with a visual reference point of support or resistance on the chart.
Traders use trendlines to try and identify the direction of the market. For example, when the price action of the security continuously rises above or falls beneath the trendline written on the chart, it indicates either an uptrend or a downtrend. For an uptrend, traders would seek to take long trades when the price action is rising above the trendline, and for a downtrend, traders would look to take short positions when the price action is falling below the trendline.
In addition to identifying trends, trendlines are also very useful in attempting to identify potential levels of entry and exit points. When the price of the security touches a trendline on the lower side, it can indicate a potential level of resistance. Conversely, when the price of the security touches the trendline on the upper side, it can indicate a potential level of support.
In conclusion, trendlines are a straightforward and highly effective way of identifying the direction of the market. There are few methods as visually impactful and easy to understand as trendlines. It requires minimal effort and interpretation to understand a trendline and apply it in trading. Therefore, trendlines can be a crucial part of the technical trader’s toolkit.