Trends and trendlines: how to draw them and what they tell you
Even once you learn all the indicators moving averages, MACD, RSI, Fibonacci levels, and so on the good old trendlines will remain your loyal friends. They can be a powerful tool of technical analysis, as long as you know how to draw them correctly. Read our beginner's guide below! As you probably know, a market is called trending when there is a visible sustained movement of the price other up (uptrend) or down (downtrend) for a while. In our previous article we mentioned that a trend continues as long as the price keeps reaching new highs (or lows). However, for a trader it's important to know not just where the price has been or is but where it's going. After all, you earn a profit when you make a correct prediction! Plotting your lineSo how do you draw a trend line? Normally you just need to choose two major highs or lows on the graphs, connect them with a line, then continue it further to the right. If other highs or low touch the same line, then you can consider it confirmed. The more times the price touches (tests) the line, the stronger the trend is considered to be. Usually you will connect the lows (bottoms) on the graph when working with an uptrend, forming the line of support (see our previous article link). Conversely, you'll use the highs to draw a downtrend line (that is, the line of resistance). Here are two diagrams to illustrate this: Uptrend: (support line)  Downtrend (resistance line):  Interpreting the lineWhy do we use support for uptrends and resistance for downtrends? Because they help determine points of entry into the market. On an uptrend, you should buy when the price either touches or (better off) just bounces off the support line. On a downtrend, you should short-sell when the price is close to the resistance line or has just bounced off it. To make your trading even more efficient, you should have both support and resistance lines on your chart and redraw them accordingly as soon as you have a new high or low. Most importantly, remember: a trend is not an actual line it's an area. So if some of your peaks and troughs are just a bit outside the line, it's not a problem. Important! Don't cheat when you draw a trendline. If it doesn't fit the actual market situation, then it's not valid. Also, remember that trendlines are not exact science. You can give the same chart to several traders, and each of them will draw a different line. Some will consider a particularly high peak part of the line and base their resistance on it. Others will think it an extreme accident that shouldn't be included. Sideways movementThe market is not always trending. It can also move sideways, or horizontally (also known as a horizontal trend). Sometimes it's said that the price action is choppy, or that the market is ranging or moving in a channel. They are all the same thing: when there is no clear uptrend or downtrend, the price will keep changing within a certain range. Here's an illustration:  As long as you have your lines of support and resistance in place, you can trade profitably in a sideways market, too. In fact, there are even more opportunities, because there are so many small peaks and troughs. However, you'll have to open and close position much more often, paying exchange fees every time and of course, the revenue itself will be smaller. Don't expect very high profit per trade when the market is in a channel. As a last point, let's stress that a lot depends on your time frame. For day traders, a trend can last a few hours, then reverse on the same day. For most traders, though, a trend usually lasts days, weeks, or even months. Our OneExBit trading terminal already includes a free tool for drawing trendlines, so you won't have to bother with pencil and paper. Our terminal includes dozens of free charts and indicators and we'll tell you all about them, one by one. Stay tuned! 🔵 We are created for your profit
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