Trendlines And Trend Line Channels

Trendlines are one of the most simplest technical analysis tools. Trendlines are one of the most simple methods to determine the trend in the market. Drawing a trendline seems to be simple. Just connect the lowest swing low to the highest swing low in an uptrend to draw a trendline in an uptrend. In the same manner, connect the lowest swing high to the highest swing high in a downtrend to draw a trendline in a downtrend.

Sounds simple? But it isn’t. Drawing a trendline is highly subjective. Ask three traders to draw a trendline on the same chart and all three of them will come up with three different trendlines. So, trendlines are ridiculed by some traders while hailed by others as an indispensable tool in their trading.

One method used by traders is to draw a trend line channel. A trend line channel is drawn by connecting the lows of the price action with one line and the highs of the price action with another line. So, these two lines contain the price action. The lower line is considered to be the support and the higher line the resistance. So, as long as the price action stays within the trend line channel, you can buy at the support trend line and sell at the resistance trend line.Now, most brokers and dealers are aware of these trend channels so they frequently hunt stops placed close to these two lines by sudden spikes in the price action.

But what happens when the price action breaks this trend line channel? For a trendline breakout to be meaningful, the price action should close above a down trendline and in case of an uptrend line price action should close below. So, when a trendline is broken the price action should either stay above or below it for it to be a valid signal. Once a support is broken, it become resistance and vice versa.

So, when a trendline is broken in a downtrend, the price action should stay above it and the trendline will now act as support instead of as resistance. There are a number of traders who consider trendlines to be very important and use them in their daily trading decisions. Kelvin Lee has developed a very effective Forex Trend Line Strategy that you should take a look at. This Forex Trend Line Strategy will tell you precisely when to enter and when to exit plus how to determine whether the trend line breakout is effective or not.