How to use Trendlines

Best Trendlines

Notes:

These indicators and concepts are specifically designed for TradingView.com

Indicator:

Go to INDICATORS and type in Trend Lines

Trendlines in indicators

Go into the settings and change the lookback for both to 90 (turn Left and Right bars both to: 90)

Lookback settings for Trend Lines

Now this will automatically map out the strongest trendlines on your chart for any given time frame and for any given security. It will give "L" for long entry possibilities following conventional trend line trading and "H" for possible short positions. Use the text and explanation below for how to trade conventional trendlines.

In Lehmans Terms: Trendlines are an effective map for what the stock is likely to do. Take a look at your chart, you will see that the general trend is true and the stock will tend to follow it.

How to create and use trendlines

Note: This is just an explanation for how to manually do it, the indicators will automatically do it for you. Don't be alarmed if you are initially confused.

Trendlines are a popular technical analysis tool that traders use to identify potential support and resistance levels in financial markets. They are created by connecting the swing lows in an uptrend or the swing highs in a downtrend. Once a trendline is drawn, it can be used to identify potential buying or selling opportunities and to manage risk by setting stop loss levels.

For example, if the price of a stock reaches a low of $10, and then later drops to $9, but then bounces back up to $10.50, that $10.50 point would be considered a swing low. A swing high, on the other hand, is a high point in price that is lower than the previous high. For example, if the price of a stock reaches a high of $20, and then drops to $18, but then bounces back up to $19, that $19 point would be considered a swing high.

Once you have identified at least two swing lows in an uptrend or two swing highs in a downtrend, you can draw a line connecting them. This line is called a trendline. In an uptrend, the trendline will be upward-sloping, while in a downtrend, the trendline will be downward-sloping. It's important to note that trend lines are not exact and should be used as a guide rather than a hard rule. They are only one tool in a trader's toolbox and should be used in conjunction with other technical analysis tools to make informed trading decisions. Trendlines can be calculated manually or using software. To manually calculate a trendline, you would need to identify the swing highs or swing lows and draw the line yourself. This can be time-consuming and can lead to errors, so many traders use software to automatically calculate and draw trendlines.

There are also several technical indicators that can be used to identify and confirm trendlines. For example, the moving average is a commonly used indicator that can be used to identify the trend and provide confirmation of the trendline. Another indicator is the Average Directional Index (ADX), which measures the strength of the trend and can help traders confirm the validity of the trendline.

Trendlines can be used to make trading decisions in several ways. One approach is to look for price bounces off the trendline as potential buying or selling opportunities. For example, if the price bounces off an uptrend trendline, this could be a signal to go long, while a bounce off a downtrend trendline could be a signal to go short. Another approach is to look for price breakouts through the trendline as potential signals of a trend reversal. For example, if the price breaks through a downtrend trendline, this could be a signal that the downtrend is ending and a new uptrend is beginning. Traders can also use trendlines in conjunction with other technical analysis tools, such as candlestick patterns and volume indicators, to confirm trading decisions and manage risk.

When a stock's price approaches a trendline, it often acts as a support or resistance level. If the price touches or nears an upward sloping trendline, it may find support and bounce back upwards. Conversely, if the price approaches or touches a downward sloping trendline, it may encounter resistance and bounce downwards. These trendline bounces occur due to market participants' psychological reactions. Traders and investors observe trendlines as significant technical indicators. When the price approaches a trendline, it triggers buying or selling activity as market participants anticipate the price to reverse or continue its current trend.