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Trends & Trend lines
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Lessons
Introduction
Charts
Basic Candlestick Types
Shapes, Sizes and Patterns
Trends & Trend lines
Support & Resistance
Moving Averages
Fibonacci
Indicators
Chart Patterns
Extras
Leading Brokers :
Trendline
 
A trendline is drawn line on the chart that shows either the bottom line of the current trend, or the top level. When adding an upper trend line and a bottom trend line to the chart, the trader receives a channel. Trend lines are often classed as support and resistance lines, which will be explained more thoroughly in the next lesson.

 


How to draw a trend line??
 
When drawing a trend line on the chart it is important to try to connect as many peaks or troughs together. The more peaks or troughs that are connected the stronger our trend line will act as support or resistance level.
The following example shows how peaks and troughs are connected building a trading channel.
 
The upper trend line consists of 4 peaks and the bottom trend line consists of 3 troughs.


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Even though support and resistance levels/lines are explained more thoroughly in the next lesson, one can see that each time the price of the EUR/USD reached the upper trend line it rammed into resistance, like a ball bouncing off a wall when thrown against it.

In this case the upper trend line is also classed as a resistance line.

The financial markets were affected by a global slowdown during 2007. As economic growth started to deteriorate in England, the bank of England started to reduce its interest rates in order to stimulate their economy. The lower interest rates had an affect on the currency market and the British Pound, causing the Pound to devaluate against a broad spectrum of currency pairs.

 
 
In the following example we see that after trending in a solid uptrend channel, the Pound lost its strength to the USD breaking a two year lower trend line.
 


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Before heading on to the next lesson, remember that practice makes perfect.
 

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