Add Trend Line on Chart

Sometimes support & resistances are formed diagonally in a similar way like a staircase. This forms a trend which is a sustained movement in one direction either upward or downwards.

A trend line depicts the points of support & resistance for the price, based on the direction of the market. For an upwards moving market it will shows the points of support & for a downwards moving market it will show the areas of resistance and they are mainly used by many investors to determine these resistance & support levels.

Indices Trend Line is a straight line that connects 2 or more stock price points and extends into the future to act as a zone of support or resistance for the price movement. There are two different types: upward and downward. It is an aspect of stock technical analysis that uses line studies to try and predict where the next move will head to. A trader must know how to draw and interpret signals generated by this tool.

The basis of this analysis is based upon the idea that markets move in trends. They are used to show three things.

• The general direction - up or down.
• The strength of the current move - and
• Where future support and resistance will be likely located

If lines forms in a certain direction then market usually moves in that direction for a period of time until a time when it is broken.

Plotting these on a stock chart highlights the general trend of the market which can either be upward or downwards.

Shown Below is example of how to draw these on charts

Guide: How to Draw & Trade Upward Move

Guide: How to Draw and Trade Down-wards Move

The MetaTrader 4 software provides charting tools for drawing these on stock charts. To draw them onto a stock chart, investors can use the tool provided on the MetaTrader 4 software that is illustrated below.

To draw on this on a stock chart just click the drawing tool above on the MT4 technical analysis software and select point A where you want to begin drawing & then point B where you want the it to touch. You can also right click on trend line & on properties option select option to extend its ray by checking 'ray check box', if you do not want to extend it, then untick/uncheck this option in your platform. You also can change other properties such as color & width on this property popup panel of the properties. You can download MetaTrader 4 software & learn technical analysis with it.

The trend is your best friend. Is a popular saying among investors because you never should go against it. This is most reliable strategy to trade because once stock prices begin to move in one direction they can continue to move in that particular direction for quite some time - hence using this method presents opportunity to make profits from the market.

Principles of How to Draw

1. Use candlestick charts

2. The points that are used to draw are along the lows of the price bars in a upwards market. An upwards bullish move is defined by higher highs & higher lows.
3. The points used to plot are along the highs of the price bars in a falling downward market. A downwards bullish move is defined by lower highs and lower lows.
4. The points used to draw are extremes points - the high or the low price. These extremes points are important because a close beyond the extreme tells investors the trend of the instrument may be changing. This is an entry or an exit signal.
5. The more often a trend line is hit but not broken, the more powerful its signal.

There are two main ways of trading this setup:

1. The Bounce
2. The Break

Analysis Methods

The bounce is a continuation signal where stock price bounces off this line to continue moving in the same direction. In a downward move, the market will bounce down ward after hitting this level which is the resistance level. In an upwards move, the market will bounce upwards after hitting this level which is the support level.

The break is a reversal stock indices signal where the market goes through the line and starts moving in the opposite direction. When an up trend is broken then sentiment of the market reverses and becomes bearish & when a down trend is broken then the sentiment reverses and becomes bullish.

For very strong trends, after this break signal, the price will consolidate for some time before heading in the opposite direction. For short term trends then this break signal will mean stock price may reverse direction immediately.

In stock technical analysis, both the bounce & the breaks that are used in technical analysis charts are based upon these levels being support and resistance.

Entry, Exit & Setting stops:

This method used to determine good entry and exit points, protective stops are placed just below them. The bounce is a low-risk entry method used by stock traders to place entry trades after stock price has retraced. Trades are setup along these levels and a stop loss placed just above or below.

The trend line break is a crucial indicator of possible reversal. When a the its broken the price starts to move in the opposite market trend direction. This provides an early exit signal for investors to exit their open trades & take profits. When there a penetration of these levels, it is a signal that the price can start heading in opposite direction.

Unlike other technical analysis indicators there is no formula used to calculate it, this pattern is just plotted between 2 chart points.