What are trend lines?
Trend lines are very crucial for people who are into technical analysis. They are lines that we see above pivot highs or below pivot lows to see the price direction. Trend lines help us have a visual representation of support and resistance in a given time frame. They show the price’s direction and how fast it goes. During price contraction, they also provide a pattern description.
Trend lines are easy to recognize on charts. They are series or prices that are connected. The resulting line gives a trader an idea of where the investment might move next, which will also help make sound trading decisions.
Trend lines and their use
Technical analysts find trend lines quite helpful because they tell us where the market price’s current direction. As a technical trader, it is your job to know more about trends and identify them to make excellent trades that can make good returns. Nowadays, traders prefer looking for trends in a price action instead of looking at previous business performances or other fundamental factors.
Creating trend lines
A trend line must at least have two points on a price chart. They are universal and efficient in identifying trends regardless of what time frame, period, or interval you will use. For instance, some prefer short and long time frames like 1 minute or 10 hours, respectively. Some prefer seeing daily or weekly charts, while some entirely do not use time. Instead, they use tick intervals.
Ending the confusion between trend lines and channels
Trends in a chart may be single or multiple. Trend lines are used chiefly for connecting the highs or lows for a certain period. These connections are the ones that makeup channels. Channels help us get a better visualization of support and resistance at the analyzed time.
We have mentioned that a chart can have only one trend line. Just like a single trend line, traders may search for spikes or breakouts to remove the price action out of the channel. The breach can be used as an entry or exit point depending on the trade setup.
The downsides of trend lines
Even though we say that trend lines are helpful, they also have their share of limitations and downsides like any other technical analysis tool. Traders need to readjust whenever there is new price data. It is inevitable because an updated chat is crucial. Trend lines can last long, but the price action will more or less need an adjustment for the sake of updates. When that happens, traders will only most likely choose other data points to connect. And there is one more thing: trend lines on smaller time frames tend to be volume-sensitive. Hence, trend lines on low volume may not last long because of volume pickups throughout the session.
Let us summarize
Trend lines show us the best fit of specific data through a single line or curve. Traders can apply single trend lines to a chart for a better trend visualization. Traders can also use trend lines to the highs and lows that will make up a channel. One trader may prefer one time period and exact points to make trend channels from another.