Trendlines
What are Trendlines?
Trendlines are straight lines that connect each successive rising bottom to show an uptrend or each consecutive declining top to indicate a downtrend. There should be 2 price points for the trendline to be drawn. The longer the trendline and the more points it connects the stronger it can support/resist the prices on subsequent tests - because more market participants are aware of it. The steeper the trendline - the more bullish or bearish the market sentiment.
The Three Trend line Strategy
Trend Lines are an important tool for trend identification and confirmation in technical analysis. It is a straight line that connects two or more price points and then extends into the future to guide you. There will be lines drawn across significant lows in an uptrend, and significant highs in a downtrend. To roughly classify trend lines, we can divide them into three as short term trendlines, medium term trendlines and long term trendlines.
2. Medium Term Trendlines
These are best observed on a higher time frame like a 60 minute chart. It either connects the nearest significant low to current price action to the previous significant low in an uptrend or the nearest significant high to current price action to the previous significant high in a downtrend.
3. Long Term Trendlines
It uses higher time frames such as the 4 hour chart or the daily chart to draw long term trendlines using the same method of Medium Term Trendlines. The long term trend line is considered as an effective Forex trading tool. The daily chart is used mostly by traders of big institutions who do not usually engage in small moves on an intra day level. By drawing a trend line on a daily chart you can graphically analyze where price is and where it is likely to bounce. But employ trendlines as a Forex trading tool with caution and discretion. Covering your charts with every trend line possible will result in confusion and blurry analysis.