Trendlines

Trendlines can be plotted on charts by connecting a high to another high or a low to another low. Generally speaking a trendline that is formed over a longer period and with more points of contact with the price itself is likely to be more reliable.

Trendlines can be useful to identify potential support or resistance areas. Supports are areas where the prices rebound after a downward movement and resistances are areas where prices tend to stall after an upward movement. Prior resistance might become potential support once the price breaks above and consolidate, vice versa prior support might become potential resistance once the price breaks down and retrace. Prior high can be potential resistance and prior low can also be potential support.

From the example above, we can also see that when a trend accelerates in one direction, the following trendline will become steeper. In instances where trendlines become too steep, it might suggest that the current trend might not be moving at a sustainable pace and a consolidation might be close.

Next: Building Blocks of Technical Analysis: Moving Averages


    Table of Contents
  1. Introduction
  2. Technical Analysis Explained
  3. Building Blocks of Technical Analysis: Charts
  4. Building Blocks of Technical Analysis: Trendlines
  5. Building Blocks of Technical Analysis: Moving Averages
  6. Building Blocks of Technical Analysis: Indicators - RSI
  7. Building Blocks of Technical Analysis: Indicators - Bollinger Bands
  8. Building Blocks of Technical Analysis: Indicators - MACD
  9. Building Blocks of Technical Analysis: Price Patterns - Reversal Patterns
  10. Building Blocks of Technical Analysis: Price Patterns - Continuation Patterns
  11. Conclusion
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