In this video, I am going to show you how to draw & interpret trendlines correctly. You can apply this method in any timeframe and instruments such as forex, stocks, futures, bitcoins, bonds, etc…
In an uptrend,a trendline connecting two swing low and act as support, which is also called demand line. In a downtrend, a trendline connecting two swing highs and act as resistance, also called supply line. So, always buy near the support and sell near the resistance to have an edge in trading.
First, we need to define the timeframe we are trading. If we trade on daily chart, we can draw trendline in the daily timeframe. If we we use to trade in H1 timeframe, draw the trendline in the H1 timeframe.
One important thing is that once the trend line is violated, we need to adjust the trendline accordingly to fit as many swing low/high as possible.
A break out from the trendline means there is a change of the pace in the trend. We can look at the trendline as a gradient. A steeper trendline means the price travel at faster pace than a less steep trendline.
If you keep adjusting the uptrend line it becomes more flat. At what point do you stop and consider the trend reversed?
mingjong
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@M4m2m0th, yes, once the gradient changes from steep to flat, you know it is going at slower pace, i.e. losing momentum. In general, the first thing I look at is a largest down wave from the uptrend as it suggests there is selling with results (i.e. down wave). After that I will anticipate at least a trading range (instead of up trend). For a trend to reverse, I need to see commitment of supply together with bearish results (mediocre rally with increasing supply something I pay attention). It is more of a relationship of effort (supply volume) vs results (bearish bar, wave).
isabellaalexandra
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I like your video.
I've been studying the predictive nature of extended trend lines and how they can become long term resistance after the've been breached.
Have you studied more advanced trend lines or do you know of a good resource that covers the topic?
@isabellaalexandra, nice chart. Glad you like the video. Here is a trendline from 2016. Currently price hit the demand line turned resistance and stalled. Will ES start a leg down here?
isabellaalexandra
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@mingjong, It looks like it could reverse shortly. Either where you have it labeled or a little further up at the areas I identified.