Before reading this lesson, you should have previously read through:

Trend lines are lines drawn at an angle above or below the price. They are used to give indications as to the immediate trend and indicate when a trend has changed. They can also be used as support and resistance and provide opportunities to open and close positions.

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Drawing trend lines

The chart below shows an example of a trend line in a downtrend and an uptrend.

Down trend line to the left and up trend line to the right

number_1 Shows three swing highs on the downtrend
number_2 Shows three swing lows on the uptrend

When drawing trend lines in a downtrend, you draw them above the price.

You can practice identifying trend lines in the following exercise:

Find the trend lines Show exercise

When you draw trend lines in an uptrend, you draw them below the price. It is the highs on a downtrend and the lows on an uptrend that will determine a trend line.

You can practice identifying trend lines in the following exercise:

Find the trend lines Show exercise

At least two swing highs or swing lows are needed to draw a trend line in either direction.

However, for a trend line to be valid, at least three highs or lows should be used. Essentially, the more times the price touches a trend line, the more valid it is, because there are more traders using them as support or resistance.

Using the wicks or bodies of the candles

To draw trend lines, some traders use the bodies of the candlesticks, while others prefer the wicks. While the majority of people will use the wicks to draw trend lines, the use of the bodies is an acceptable way to draw trend lines on a chart.

The chart below shows a trend line drawn using the wicks of the candlestick.

Trend line using wicks

The next chart below shows a trend line drawn using the bodies of the candles. Either of these are acceptable.

Trend line using bodies

Trend lines are subjective, so use what you feel comfortable with. However, it is important not to deviate from the method that you choose.

Using trend lines to trade

There are two predominant methods in which to trade using trend lines:

  • Entering when the price finds support or resistance at the trend line
  • Entering when the price breaks through the trend line

Trend line as support or resistance

If a trend line has been identified and it is holding as support or resistance, then you can use the trend line to enter into the market once the price comes back to it.

Enter a trade downtrend

es1 Short entry after the price finds resistance at the trend line
sl2 Stop loss above the trend line

The chart above shows the trend line being used as resistance and the price using it to find an entry.

A stop loss can be put on the other side of the trend line. The size of the stop loss depends on the strategy involved.

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Trend line break

The trend line break method uses the actual breakout of the line to determine an entry. When the price breaks through a trend line, it is no longer valid as support or resistance and it is likely that the price will continue to reverse direction.

There are two ways to enter using a trend line break: an aggressive entry and a conservative entry.

An aggressive entry

An aggressive way to enter using a trend line break is to enter as soon as the candle breaks through and closes on the other side of the trend line.

Aggressive entry trend line break

es1 Short entry after the price broke through the trend line to the downside
sl2 Stop loss is placed above the trend line

The chart above demonstrates that once the candle closes on the other side of the trend line, then you can enter immediately. A stop loss can be placed on the other side of the trend line.

A conservative entry

A more conservative way of trading the trend line break is to wait until the price has broken through the trend line and then tested from the other side as either support or resistance.

Conservative entry trend line break

number_1 Price breaks through the trend line to the downside
number_2 Wait for the price to come back to the trend line and find resistance
es3 Once determined that the breakout is true, enter into a short entry
sl4 Stop loss is placed above the trend line

The chart above shows a trend line that has been broken after acting as support. The price then tested it from the other side as resistance, further confirming that the breakout is likely to continue. After the trend line has been tested as resistance, you can enter a short position and place a stop loss on the other side of the trend line.

Caution using trend line breaks

In order to trade a breakout of a trend line, it is a good idea to wait until a candlestick actually closes on the other side, or tests the other side of the trend line as either support or resistance. Without a close on the other side of the trend line, it is generally not considered an actual break.

Trend line break wait for close

number_1 False breakout

In the above chart, the price moved below the trend line. However, it retraced and the candlestick closed above the trend line. If a trader entered as soon as the price broke through, it would have been a losing trade.

Summary

So far, you have learned that ...

  • ... trend lines are drawn at an angle and are used to determine a trend and help make trading decisions.
  • ...in an uptrend, trend lines are drawn below the price and in a downtrend, trend lines are drawn above the price.
  • ... to draw a trend line in an uptrend, two lows must be connected by a straight line.
  • ... to draw a trend line in a downtrend line, two highs must be connected by a straight line.
  • ... a trend line should be connected by at least three highs or lows to make it valid.
  • ... the more times the price touches the trend line, the more valid it is.
  • ... trend lines can be used as support or resistance, in which case you can enter trades when the price touches the trend lines.
  • ... another way to trade using trend lines is a trend line break, where the price breaks through the trend line.

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  • Hi rho,

    do you like the article about trend lines? I think it´s very comprehensive and the educational value is really high.

    If you´re interested in trend line trading, we also have a special forum thread devoted to this topic: Trend line trading.

    Feel free to join the discussion & post your charts. smile and if you have any questions don´t hesitate and ask.

    Cheers.
  • Is there a general rule in where to put T/P when trend line trading? Do we target the next support/resistance line?
  • sp00nman:
    Is there a general rule in where to put T/P when trend line trading? Do we target the next support/resistance line?
    This is what I would like to know too. But probably it is explained later on hehe smile
  • Hi,

    Why is the video on this page only available for Silver status members and the article readable for everyone? It is a non-sense: trend lines is basic knowledge...
  • It might be a technical issue let me double check it with IT, usually the vid and the lesson requires the same status. Otherwise they cover the same topic with the same examples.

    regards,
    H
  • Is there a general rule in where to put T/P when trend line trading? Do we target the next support/resistance line?
  • Hi anand,

    Yes i would definitely target s&r even if trend line is there as these are way too arbitrary and not as effective from a mass psychology point of view.

    Good thinking,
    Regards,
    H
  • The "Stop loss is placed above the trend line" thing confuses me. Why they put it there and not upper or lower?
  • Hi NinjFilm,
    Stops always need to go above resistance and below support by principle. That makes it less likely to be taken out. So when you have a downward trend line it roughly designates the upper areas of the selling pressure. Should price trade higher one can assume this selling pressure has faded and one is likely wrong so it is better to close the trade. That is why stops need to go above a downward and below an upward trend line. Hope that makes sense. Regards.
    Peter
  • el materia es exelente, podrian mandarme videos en español
  • Hi!

    Aside from waiting for the re-testing of the trendline to confirm a breakout, is there another method where you can confirm that the breakout is real?

    Thankssmile
  • Found that you can use technical indicators to do this.
  • Hi Yaaqub,
    Sure there is. You can check correlating markets and see if the respective support & resistance or trend line has been also broken. Another way is to check momentum or volume indicator if there's higher than normal reading. If the break happens on an unusually long (closed) candle that is also a good confirmation. Also if break happens in London or early US session they are more likely sustainable.
    Let me know what you think.
    Regards.
    Peter
  • Hi Peter,

    Thanks for the reply smile Guess I will have to try out first based on your answers first considering that I am still new to trading and still learning.
  • In question 8 of the quiz for this lesson, the correct answer for stop loss placement seems to put the stop loss above the support. Am I missing something? It seems to me that the only stop loss that falls below the trend line is answer 3. Also, question 8 specifies what price but not which time point on the chart we entered into the long position - which presumably influences where we'd want to place the stop loss.

    Any thoughts?

    Many thanks for this wonderful website.
  • Hi Redline8400,
    Thanks for the question. We will review the quiz and check if there's an error. Please stay tuned until we discuss if we need to do any changes or whether the issue has any explanation.
    Regards.
    Peter
  • Hi there, thank you for the pretty comprehensive tutorial .What is the best time frame to use for trading trend lines?

    Regards,
    Tasha
  • Hi Tasha,
    Trend lines are quite universal, you can use them on any market any time frame. Really can't say that a specific time frame is more suited for them.
    Regards.
    Peter

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