WHAT IS TRENDLINE? HOW TO RECOGNIZE

What is Trendline? Join COINSTRATEGISTS to explore the article below to better understand and apply valuable knowledge to your investment strategy.

WHAT IS TRENDLINE?

Trend lines are basic tools in technical analysis, highlighting trends or ranges of price movements. Just as support and resistance represent buying and selling pressure, so do trend lines, but they are diagonal.

Instead of looking at past trading performance and trading principles, analysts look for trends in price action. Trendlines help them analyze the direction and speed of market prices.

Basically, trendlines can be divided into:

• The upward trendline connects from lower points to higher positions. 
• Bearish trendline are connected from higher points to lower positions.

HOW TO DRAW TRENDLINE

What is a trend line? If you already know about its origins, learn more about how it works below:

KEY TRENDS

In the markets, whether it is stocks, forex or cryptocurrencies, it is easy to identify 3 main trends:

Uptrend (trend to make a higher bottom) 

Downtrend (trend to make lower peaks) 

Sideways trend (Price is within a certain range)

The steeper the trendline, the more cyber that trend is. And the stronger the trend, the lower the reliability because that trend is easy to break and form another trend. 

UPWARD TRENDLINE

1. The trendline is below the price. 
2. At least 2 points are needed for 2 bottoms, the latter is higher than the previous bottom. If the price touches the trendline several times over a long period of time. This trendline represents a support level, where you can look for buying opportunities, or enter a long position. 
3. Stitching it together will form an uptrend.

DOWNWARD TRENDLINE

1. The trendline is above the price. 
2. At least 2 points are needed for 2 peaks, the latter peak is lower than the previous peak. If the price touches the trendline several times over a long period of time. This trendline represents a resistance level, where you can look for opportunities to sell, or enter short positions. 
3. Connecting it together forms a downtrend.

3 IMPORTANT POINTS TO CONFIRM THE TREND

As in the concept, only 2 high or low points are identified and then connected together and crossed into a trend line. However, to confirm that it is a correct trend may need 3 points, this is also the advice of experienced analysts.

Possible explanation: Because trend lines are like resistance and support levels. The steeper the trend line, the stronger the trend. And the stronger the trend, the less reliable it is because that trend can easily be broken and form another trend.

– What are Bollinger Bands?

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USE HIGHER TIMEFRAME

The purpose of using higher time frames such as (day, week,…) will create reliability,… a more reliable prediction of the trend.

For example, the chart below shows the trend on a daily timeframe. After the second law is determined. The market formed a pin bar at the third touch of this uptrend.

This is a buying opportunity for you, by looking for the trendline support level. Also, when showing a trend on the weekly chart. This is said to be an ideal time frame to realize potential opportunities.

THE TRENDLINE IS NOT PERFECT LINE

Trendline when you draw it is rarely perfect: It connects from the high to the low of the candle, or from the close and the open price of that candle. A valid trend line requires multiple touches without crossing the candles. If it passes, it will be considered invalid.without crossing the candles; If it crosses the candle, the trendline may not be valid.

DON’T TRY TO DRAW A CONSISTENT TREND LINE

If you try to draw a trendline and force it to fit the market, it is not a valid trendline. This is a trick that newbies often get stuck in. If it doesn’t fit, identify a different template.

TREND LINE STRATEGY IN TRADING

At a basic level, you can use two methods of trading with a trendline: Use it when the price finds resistance or support at the trendline. Used when the price crosses the trend line (trend break). Now let’s go one strategy at a time:

TRENDLINE BREAK

What is a trend line? This trendline breakout method is the most popular, helping to find potential market reversal points, as illustrated below:

This chart is of a market that broke support and then price rallied to retest that trend making it look like a new resistance level. This method uses breakouts to identify trading points.

There are two ways to trade if you encounter the above situation (similar to breaking resistance):

Method 1: Short entry at the point when the price crosses the trend line and goes down. Stop loss is placed above the trendline.

Method 2: This method waits for the price to break and surpass the trend line, then returns to test the resistance level. When determining the breakout is correct, place a short order and stop loss above the trendline.

BE CAUTIOUS WITH TRADING STRATEGIES

As well as many other analysis tools. Trading strategies only help you determine what you should do with this market, but do not give you a specific profit or loss level. Therefore, you should combine many other tools such as MACD, Bollinger bands, etc.

CONCLUSION

What is trend line? Trendline needs to connect at least three peaks or troughs to be accurate. Use it as support and resistance levels in trading as prices approach trendlines, or take advantage of breakouts to optimize profits. It is important to put this strategy into practice and find ways to use trend lines effectively.