How to Draw Trend Lines and Channels on Charts

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

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 - Forex trendlines are mainly used by many traders to determine these resistance and support levels on charts.

A Trend line is a slanting straight line that connects two or more price points and then extends into the future to act as a level of support or resistance. There are 2 types of trend lines: upward trend line and downward trend line. Forex trendline is an aspect of trading technical analysis that uses line studies to try and predict where the next price move will head to. A trader must know how to draw & interpret signals generated by this trend line tool.

The basis of this technical analysis is based upon the idea that markets move in trends. trendlines are used to show 3 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 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 highlights the general trend of the market which can either be upwards or down-wards.

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

Guide:How to Draw Up-wards Trendline and Trade Upward Trend Move

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

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

To draw trendlines on a chart just click the MT4 Draw Trendline 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 trend-line to touch. You can also right click in trendline and on the properties option choose the option to extend the ray by ticking the 'ray check box', if you don't want to extend the trend line, then uncheck this option in your MT4 platform. You can also change other trendline properties such as color & width on this property popup window of the trend-line properties. You can download MT4 software and learn trendline technical analysis with it.

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

Principles of How to Draw Trading Trendlines

1. Use candlestick charts

2. The points used to draw the trend-line are along the lows of the price bars in a rising market. An up-wards bullish trend move is defined by higher highs & higher lows.
3. The points used to plot the trend line are along the highs of the price bars in a 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 currency pair may 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 trendline technical analysis setup:

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

Technical Analysis Methods of Trend Lines

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

The trendline break is a reversal signal where the market moves through the trend-line and starts heading in the opposite direction. When a up trend is broken then the sentiment of the market reverses and 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 heading in the opposite direction. For short term trends then this trendline break signal will mean price may reverse immediately.

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

Entry, Exit & 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 strategy used by 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 technical indicator of possible trend reversal. When the trend-line is broken the price starts move in the opposite direction. This provides an early exit signal for 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 moving in 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.