A trend line is formed when you can draw a diagonal line between two or more
price pivot points. They are commonly used to judge entry and exit
investment timing when trading securities.
A trend line is a bounding line for the price movement of a security.
A support trend line is formed when a securities price decreases and then
rebounds at a pivot point that aligns with at least two previous support
pivot points. Similarly a resistance trend line is formed when a securities
price increases and then rebounds at a pivot point that aligns with at least
two previous resistance pivot points. The following chart provides an
example of support and resistance trend lines:
Trend lines are a simple and widely used technical analysis approach to
judging entry and exit investment timing. To establish a trend line
historical data, typically presented in the format of a chart such as the
above price chart, is required. Historically, trend lines have been drawn by
hand on paper charts, but it is now more common to use charting software
that enables trend lines to be drawn on computer based charts. There are
some charting software that will automatically generate trend lines, however
most traders prefer to draw their own trend lines.
When establishing trend lines it is important to choose a chart based on a
price interval period that aligns with your trading strategy. Short term
traders tend to use charts based on interval periods, such as 1 minute (i.e.
the price of the security is plotted on the chart every 1 minute), with
longer term traders using price charts based on hourly, daily, weekly and
monthly interval periods.
Trend lines are typically used with price charts, however they can also be
used with a range of technical analysis charts such as MACD and RSI. Trend
lines can be used to identify positive and negative trending charts, whereby
a positive trending chart forms an up sloping line when the support and the
resistance pivots points are aligned, and a negative trending chart from a
down sloping line when the support and resistance pivot points are aligned.
Trend lines are used in many ways by traders. If a stock price is moving
between support and resistance trend lines, then a basic investment strategy
commonly used by traders, is to buy a stock at support and sell at
resistance, then short at resistance and cover the short at support. The
logic behind this, is that when the price returns to an existing principal
trend line it may be an opportunity to open new positions in the direction
of the trend, in the belief that the trend line will hold and the trend will
continue further. A second way is that when price action breaks through the
principal trend line of an existing trend, it is evidence that the trend may
be going to fail, and a trader may consider trading in the opposite
direction to the existing trend, or exiting positions in the direction of
Commodity Channel Index
On Balance Volume
Relative Strength Index
Support and Resistance
The Elliott wave principle
Triple Exponential Average
Volume At Price