How To Measure The Strength Of A Trend With Trendlines?

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Trend is your friend. You must have heard this often from experienced traders. When a trend is formed prices start to increase in a steady manner or start decreasing in a steady manner. You can find the direction of the trend by connecting the high or the lows with a straight. This is done visually and the line is known as the Trendline.

Drawing a trendline is a subjective thing. So don't expect the trendline drawn at an angle of 45 degrees to be right and another one drawn at the angle of 47 degrees to be wrong. Keep this in mind that trendlines aren't perfect and can touch prices. Sometimes, the trendline can only be drawn through price areas.

However keep these basics of drawing trendlines when you draw them.

1) A trendline should touch at least three different price points to be valid.
2) The more times a trendline is touched, the stronger the support and resistance of that line.
3) The longer the trendline, the more staying power it will have.

How to draw Uptrend lines? Uptrend lines are drawn by connecting the lows in the price action. An uptrend line indicates the rate of ascent that the buyers maintained over a certain period of time.

Uptrend line has an important characteristic. They represent the support for the bulls. Once an uptrend line is breached successfully by the price action, this support turns into resistance. You can enter a trend by going long at the trendline with a stop loss placed just below the trendline.

As against uptrendlines, downtrendlines are drawn by joining the high points in the price action. The more the downtrendline is touched by the price action, the more meaningful it is. The longer the downtrendline, the more chances are that it will continue. You will find the trendline to be almost horizontal in case the market is consolidating or ranging. Horiztonal trendlines are perfect for the use of Darvas Box System. Darvas Box System was discovered by Nicholas Darvas who used it to make $2.5M from just $25K in just under 18 months in 1963.

Trendlines often get pierced. This break in the trendline may signal an actual breakout or it maybe just a false breakout. You need to confirm this with the help of candlestick patterns like the Hammer or the Hanging Man. Candlestick patterns are powerful visual tools in the hands of a trader. Combining Candlestick patterns with trendlines can be a powerful. Most trading softwares now have candlestick charts included with them.


About the Author:
Mr. Ahmad Hassam is a Harvard graduate. Get the Ultimate Swing Trading Software FREE. Turn $200 into $100K with this Penny Stock Trading System!



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