Trend line
Family VI · Charts & indicators
Not to be confused with line chart, trend continuation, trend reversal.
Trend line is a straight line drawn on a price chart connecting two or more successive lows in an uptrend or successive highs in a downtrend. It visualises the direction and slope of a price movement and is used to identify potential support or resistance. A trend line requires at least two touch points to be drawn, and gains significance as more price points confirm it.
Construction and interpretation
An uptrend line is drawn below the price by connecting higher lows; it acts as a dynamic support level. A downtrend line is drawn above the price by connecting lower highs; it acts as dynamic resistance. The line's slope indicates the speed of the trend: a steeper slope suggests a faster rate of change, while a shallower slope indicates a slower one.
Traders watch for price to approach the trend line and either bounce from it (confirming the trend) or break through it (signalling a possible change). A trend line is not a fixed indicator; it is a subjective tool that depends on the points chosen, and different chartists may draw slightly different lines on the same data.
Worked example
The line connects the three lows, and its slope is 5.00 per period. A later low near 115.00 would sit on the same line if the trend continues at that rate.
Limitations and variations
Trend lines are drawn on different chart types and timeframes, and their reliability varies with the market and the number of touch points. A line with only two touches is provisional; three or more touches generally increase its perceived validity. However, trend lines are not predictive guarantees, and price can break a line without a change in the underlying trend.
Some chartists use logarithmic scales for long-term charts, which changes the slope of the line. Others use channels, which are parallel lines drawn above and below the trend line. The choice of scale and points is a matter of convention and may vary by analyst.
Often confused with
- line chart
- A line chart is a chart type that plots a single line connecting closing prices, whereas a trend line is a drawn line that connects selected highs or lows; the visible sign is that a line chart shows the entire price history as one continuous line, while a trend line is a straight line overlaid on a chart.
- trend continuation
- Trend continuation is a pattern or signal that the existing trend will resume after a pause, whereas a trend line is a tool used to visualise the trend; the visible sign is that trend continuation refers to a price formation, while a trend line is a straight line drawn on the chart.
- trend reversal
- Trend reversal is a change in the direction of price movement, whereas a trend line is a line that helps identify the trend; the visible sign is that a trend reversal is an event or pattern, while a trend line is a graphical line that may be broken when a reversal occurs.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci