Break out trend line. HOW TO BUILD A TREND LINE

Breakout of the trend line

Good day to all readers of my blog and colleagues! Today we will consider such a phenomenon as a trend line breakdown, taking into consideration the analysis of traded volumes. What are trend lines drawn for, what are their application variants and what characteristics make a breakout or rebound possible - we will consider all these questions today. The trend line is probably the most popular tool for any kind of technical analysis, which can give an idea of the possible price behavior both in the short term and in the long term.


WHY BUILD A TREND LINE
Typically, the trend line is used to indicate the direction in which the market is moving. Also, it can be used to identify support and resistance not only at the moment, but also in the future. If the price has reached the trend line but has not broken it, it means the effort was not enough and in the future it will return to it. Old (broken) trend lines can still be used in the analysis, along with the current ones. The places where these lines intersect form fairly strong points of resistance or support. Breaking the trend line with a strong movement, gives a signal that the current trend has changed and the price is changing its direction.

HOW TO BUILD A TREND LINE
In order to draw a trend line, it is necessary to draw a straight line through two price extremums on the chart. For the growing market, the minimum extrema are considered important, because when the support is broken, the direction of the price changes. And for the descending movement, the maximum values are important, when breaking through which everything can change. The line can go far into the future because the price, as a rule, if it does not break through it, certainly returns to it.

TREND CHANNEL
A trend channel can be built using a trend line corresponding to the market direction and a parallel line passing through the opposite extremum. Quite often the price moves inside such a channel, bouncing periodically from its borders, which can be used for profitable trading.

VOLUME ANALYSIS NEAR TREND LINES
Analyzing the traded volumes, when the price approaches the trend line, it is possible to understand the possible further market movement with a high degree of probability. In order to overcome the resistance or support of the trend lines, it is necessary to make an effort, which is expressed in large volume and a large spread (candle or bar of large size). If a small candle is formed when the price approaches the trend line, and the volume is below average, then this effort will not be enough to break the line. Professional traders and market makers have no interest in seeing price move in that direction. Even if price does break through the trend line, without the big players ("smart money"), such a move will not last long and price will return inside the channel again. If there is increased volume as price approaches the trend line, it is likely that resistance or support will be broken.

BREAKING THE TREND LINE.
In order to break the trend line, as written above, an effort is required. If the candle that broke the trend line of a large size, it really is a break of the previous trend. If a gap is formed, which broke through the trend line and formed a candle with a long body and a large traded volume, then it is also a true breakout.