As we know, the market does not move in a straight line, but through impulses and corrections.
The trend, bullish or bearish, develops itself according to the behavior of the market. The interesting about Trends (even the short ones) is that technical analysis provides information for identifying places to buy and sell.
To identify these trend points, we draw the Trendline. It helps to visualize these movements, making the analysis even more complete.
Drawing a Trendline
The Trendline is made up by connecting the bottom points of the rising price series. The line formed by the union of the bottoms tends to be a support line. This way, it is possible to use the studies bar to draw these lines, as shown below:
To draw a Trendline, access Insert Menu > Trendline.
In the chart, an uptrend line is perceptible. When the pair's traded price approaches that line, the upward movement is confirmed, renewing the bullish trend.
On the other hand, when it comes to downtrend lines, we connect the upper points of the falling price movement. The line formed by the union of these tops tends to be a line of resistance, as illustrated below:
Therefore, whenever the market is trading near the Downtrend Line, it confirms the movement, reinforcing the downtrend in the market.
Trend Lines provide great advice! In an uptrend, the support line formed may suggest good buying opportunities. Similarly, when the price approaches the resistance line, there are good selling signals.
Other important features
- As with supports and resistances, the more the trendline is tested and resists, triggering new market reactions in the opposite direction, the stronger it is;
- The Principle of Reversal is also valid for trendlines.
Wait. But what about the volume?
During an uptrend, the volume normally grows as the prices rise, moving away from the trendline, and decreases when the price gets back at it.
The same applies to a downtrend line: the volume grows as the prices fall, getting far from the trendline. Guess what?
The volume decreases when the price reaches the trendline again.
To get visually familiar with this feature, click here and watch a video produced by our partner, Nelogica.
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