Trendline

An ascending trendline is drawn by connecting a series of higher lows, while a descending trendline is drawn by connecting a series of lower highs. Drawing a reliable trendline requires at least two points, but three or more touchpoints grant it greater credibility as a dynamic support or resistance level that shifts over time.

A trendline is used in several ways: as a tool to confirm trend continuation as long as the price respects and rebounds from it, and as a potential reversal signal when cleanly broken and confirmed by high trading volume. It also aids in plotting price channels when a parallel line is drawn along the opposite side.

In practice, the more moderate the slope of a trendline, the more sustainable and reliable it is, whereas overly steep trendlines are prone to rapid breaks because they reflect unsustainable momentum. Some analysts prefer using only closing prices rather than wicks when drawing the line to reduce market noise.

Common mistakes include plotting a trendline with only two points without waiting for a third confirmation, or continually redrawing the line to justify a preconceived directional bias. Additionally, traders should note that a trendline break does not always indicate a full reversal; it may simply signify a temporary loss of momentum, warranting patience for further confirmation.