Trend lines are used in technical analysis to define an uptrend or downtrend. Traditionally, uptrend lines are made by drawing a straight line through a series of ascending higher troughs (lows). ... With downtrends, trend lines are formed by drawing a straight line through a series of descending lower highs.
In an uptrend, the “imaginary line” acts as support and in a downtrend, the line connecting the points at swing highs become the resistance.
Although we can go into what and why – the logic for trend line, is to keep it simple. It’s another subjective area and people like to spot patterns. It’s human nature.
This shows in it's most basic form the concept of a trend line.
In an uptrend we want to see, higher highs as well as higher lows as shown below;
And in a down trend, the opposite is true - Lower highs & lower lows to create the pattern as per main image of this post.
Many other techniques and indicators use this concept, and perhaps the most famous being Elliott waves.
Here's a post on Elliott basics;
This then all points back to Dow Theory - where markets have 3 cycles and 3 waves (another lesson for another time) in short;
Here's also a post covering the Dow basics;
You can also use Moving averages as part of "working out the trend"
And her is another simple guide to MA's (moving Averages)
We thought it would be interesting to post, more of a beginners post that our usual stuff. Hope this helps some of the newer traders.
Disclaimer This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Never really tried Elliot Waves as for me it always seemed to be too much of a hazzle / work but this was prob. the best simplified explanation so far. Good job ;)
Mayfair_Ventures
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@Trader_SE, Yes and most people over complicate Elliott as a whole, I use Elliott but mainly for monthly and weekly Bias. So none of the noise and over-labeling! Thanks for the comment.
kimozelghonemy
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Keep on going
Sobhan_23
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Trend lines are simple but powerful tools for those who are in favor of trend following strategy,like me😅!
FallingWedge
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Can you explain please why in an uptrend we should connect higher lows? Isn't uptrend is formed by higher highs?
Mayfair_Ventures
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@FallingWedge, yes by creating higher highs, but the trend line is done from the lows (support) so you can expect a bounce off that level as the price moves up to make another high.
moonshot
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This is great thanks. I just tried to see what was going on with Tesla - Down trend seems invalidated and looks like a symmetrical triangle is forming.
Mayfair_Ventures
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@moonshot, that does look like a narrowing range move. So it's sideways until taking out the older low or high giving the direction - but zoom out