Trend Lines are probably the earliest form of technical analysis tools. Their importance is built on the assumption that prices tend to trend in a given direction for a period of time. In its simplest form, a trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. We try to identify these because when the line is broken, price will likely follow through with a strong move into the new direction.
Trend lines are identified and then drawn across a chart's lows (left to right) for an upward trend and across the highs (left to right) for a downward trend. They are most commonly used to identify trend line breaches (or breaks) and trendline reversals.
The Uptrending Channel is also known as an Ascending Channel.
Trend line breaches help us identify when a security is changing direction. The longer period of time that a trend line is established, the more significant a decisive move will occur. The alert trader will take advantage of this trade set-up.
Trend line Confirmation
For a trend line to be valid, It takes two or more points to draw the line on a chart. An easy way to measure strength is to draw the trend line and count the points that are touched. The more points that interact, the more validity attached to the support or resistance level represented by the trend line.
It is important to know that not all charts lend themselves to a trend line. Sometimes the lows or highs just don't line up, and it is best to move on to the next chart. The general rule is that it takes two points to draw a trend line and the third point confirms its validity. More than three points further confirms its importance.
While trend lines are a very accepted aspect of technical analysis, they are merely one tool for establishing, analyzing, and confirming a trend. Trend lines should serve merely as a warning that a change in price direction may be imminent. Use trend lines for advanced alerts in addition to paying close attention to other confirming signals. An increase in volume is another complimenting signal.
Once price moves into the trend line and then reverses against it, meaning that it does not penetrate through it, we can assume that the current trend will continue. The Downtrending Channel is also known as a Descending Channel.
The
Sideways or
Darvas Box trend is also referred to as a
box trend because of the support and resistance area's confining shape.
