Trend lines

Trend lines are probably the most common form of technical analysis used today.

If drawn correctly, they can be as accurate as any other method. Unfortunately, most traders don’t draw them correctly or try to make the line fit the market instead of drawing an objective trend line.

In its most basic form, an upward trend line is drawn along the bottom of easily identifiable areas of supports (valleys). In a downtrend, the trend line is drawn along easily identifiable resistance areas (spikes).

Applying the Dow theory, we can divide the trend lines into three types:

  • Bullish: Prices increase over time.
  • Bearish: Prices fall.
  • Side: Prices remain in a more or less narrow range. As a general rule, lateral stages are moments of consolidation of prices that precede bullish or bearish stages.

With trend lines and the channels that we will see in the next chapter, we can obviously determine the market trend, and with the oscillators (which we will also see later) we can recognize if this trend is strong or weak.

Leave a Reply

Your email address will not be published. Required fields are marked *