How to Draw Trend-Lines and 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 upwards or downwards.

A trend line depicts the points of support and resistance for the price, based on the direction of 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 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 extends into the future to act as a zone of support or resistance for the price movement. There are two different types of trend lines: upward trend line and downward trend-line. Trendline is an aspect of analysis that uses line studies to try & 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 analysis is based upon the idea that markets move in trends. Trendlines are used to show three things.

• The overall direction of market - up or down.
• The strength of 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 trend line is broken.

Drawing these trend lines on a chart displays the general trend of the market which can either be up-wards or downwards.

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

Course: How to Draw Up-wards Trend Line & Trade Upwards Trend Move

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

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

To draw trend lines on a chart just click the MT4 Draw Trend Line Tools as shown above on the MT4 platform trading analysis software and select point A where you want to start drawing the trend-line & then point B where you want the trend line to touch. You also can right click in the trend line and on the properties option select the option to extend its ray by ticking "ray check box", if you don't want to extend the trend-line, then untick this option in your MT4 software. You also can change other trend line properties such as color and width on this property popup window panel of the trend-line properties. You can download MetaTrader 4 software and learn trendline trading analysis with it.

The trend is your best friend. Is a popular saying among traders because you never should go against it. This is the most reliable strategy to trade because once prices start to head in one particular direction they can move in that particular direction for sometime - therefore using this market trend strategy presents an opportunity to make trading profits from the market.

Guidelines of How Do I Draw Trend-Lines

1. Use candle-stick charts

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

There are two main ways of trading this trend line trading analysis setup:

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

Technical Analysis Methods of Trend-Lines

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

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

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

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

Entry, Exit and Setting stops:

This trend line 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 technique used by traders to place entry trades after price has retraced. Trades are setup along these trend-line levels & a stoploss order placed just above or below these trend-lines.

The trend line break is a crucial technical indicator of possible trend reversal. When the trend line is broken the price starts to head in opposite trend direction. This provides an early exit signal for traders to get out of their open trade positions and take profits. When there a penetration of these trend line levels, it is a signal that the price can start moving in the opposite market direction.

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

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