A trendline is a straight line drawn on a chart to connect price points and show the direction of a trend. A price channel adds a second, parallel line, so price moves between two boundaries. They are among the simplest and most useful tools in technical analysis, on stocks, crypto and forex alike.
How trendlines are drawn
- Uptrend line: connect two or more higher lows. Price tends to stay above it while the uptrend lasts.
- Downtrend line: connect two or more lower highs. Price tends to stay below it.
The more times price touches a line and respects it, the more traders notice it.
What a channel shows
When you draw a parallel line on the other side of price, you get a channel:
- Ascending channel: rising lines; an uptrend moving in a steady range.
- Descending channel: falling lines; a steady downtrend.
- Horizontal channel: flat lines; a sideways market.
Why trendline breaks matter
A clear close through a long-standing trendline is an early sign that the trend may be changing. It does not guarantee a reversal; price can break a line and then carry on. Traders usually look for confirmation, such as a retest of the broken line or higher volume.
Common beginner mistakes
- Forcing a line through candles to make it “fit”
- Drawing lines on very short timeframes only
- Treating every small break as a signal
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This article is for education only and is not investment advice. Trading shares, cryptocurrencies, forex and other markets involves risk, including the loss of capital.