How to Draw Trend Lines & Channels on Charts

Sometimes support and resistances are formed diagonally in a similar way like a staircase. This forms a trend which is a sustained movement in one direction either up-wards or down-wards.

A trendline depicts the points of support and resistance for the price, depending on the direction of the market. For an upward moving market trend - trend line will shows the points of support and for a downward moving market trend - trend line will show the areas of resistance -trendlines are mainly used by many stock traders to determine these resistance and support levels on stock charts.

A Trend line is a slanting straight line that connects two or more trading price points and then extends into the future to act as zones of support or resistance. There are two types of trend lines: upward trend line and downward trend line. Indices trading trend line is an aspect of technical analysis that uses indices line studies to try & predict where the next price move will head to. A trader must know how to draw and interpret signals generated by this trend line tool.

The basis of this technical analysis is based upon the idea that markets move in trends. Indices trading trend lines are used to show Three things.

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

If trend lines forms in a certain direction then the trading market usually moves in that direction for a period of time until a time when this trendline is broken.

Drawing these trendlines on a chart portrays the general trend of the trading market which can either be up-wards or down-wards.

Shown Below is example of how to draw these trend lines on charts

Course: How to Draw Upward Trend Line & Trade Upwards Trend Move

Course: How to Draw Downward Trend Line and Trade Downward Trend Move

The MT4 software provides charting tools for drawing these trend lines on stock charts. To draw trendlines onto a chart, stock traders can use the trading tools provided in MetaTrader 4 software that is displayed below.

To draw trendlines on a chart just click the Stock Indices MT4 Draw Trend Line Tools as shown above on the MT4 platform technical analysis software and select point A where you want to start plotting the trendline & then point B where you want the trendline to touch. You can also right click in trend line & on properties option select option to extend its ray by checking 'ray check box', if you do not want to extend the trend line, then untick this option in your MT4 software. You can also change other trendline properties such as color & width on this property pop up window of the trendline properties. You can download MT4 software and learn trendline technical analysis with it.

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

Principles of How to Draw Trendlines

1. Use candle charts

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

There are two main ways of trading this trend line technical analysis set-up:

1. The Trendline Bounce - Trend Line Bounce
2. The Trend Line Break - Trend Line Break

Technical Analysis Methods of Trend Lines

The trendline bounce is a continuation stock signal where price bounces off this trend line to continue moving in the same direction. In a downward trend, the trading market will bounce downwards after hitting this trend line level which is the resistance level. In an upward trend, the trading market will bounce up-wards after hitting this trend line level which is the support level.

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

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

In indices trading, both the trend line bounce and the trendline break that are used in analysis charts are based upon these trend line levels being support & resistance areas.

Entry, Exit and Setting stops:

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

The trendline break is a crucial indicator of possible trend reversal. When the trendline is broken the price starts move in the opposite direction. This provides an early exit signal for stock traders to exit their open trades and take profits. When there a penetration of these trend line levels, it's a signal that the price can begin heading in the opposite direction.

Unlike other technical analysis indicators there is no formula used to calculate the trend line, this trend line formation is just plotted between two chart points on the chart.