How to Draw Trend Lines

Drawing trend lines are the basics of technical analysis, what I have always found confusing is that if you ask 10 people to draw a trend line you usually get 10 different lines. That’s because trend lines are very subjective and technicians don’t all subscribe to a standard definition. The following is the most definitive definition of a trend line.

Difficulty: Moderately Easy

Instructions

1. Choose the market and time frame you would like to draw a trend line on. This technique will work for stocks, indices, bonds, currencies and commodity's. This technique works on all time frames ranging from intraday charts, daily, weekly and monthly.

2. Determine if the market that you are analyzing is in an uptrend or a downtrend. This is very easy, an up trending market moves from the bottom left of the screen to the upper right and down trending markets move from the upper left of the screen down to the lower right of the screen.

3. 
    
   This is an example of an up trend line.

   For an uptrend line in the time period that you are analyzing, draw a line from the lowest low, up and to the highest minor low point preceding the highest high, so that the line does not pass though prices between the two low points. See examples.

4. 
    

   This is another example of how to draw and up trend line.

5. 
    
   This is an example of a down trend line.

   For a downtrend line in the time period that you are analyzing,draw a line from the highest high, down and to the lowest minor high point preceding the lowest low, so that the line does not pass though prices between the two low points. See examples.

6. 
    

   This is another example of how to draw a down trend line. For larger images go to http://ripetrade.blogspot.com/2008/10/how-to-draw-trend-lines.html

Tips & Warnings

• I like to draw trend lines on close only charts, so for these examples I used close only charts. If you like to use OHLC charts make sure that you connect the lows on uptrend , so that the line does not pass though prices between the two low points and for down trend lines make sure that you connect the highs so that the line does not pass though prices between the two low points .
• Just because you drew the trend line correctly and the market broke the trend line will not guarantee that the direction of trend line break will continue. Always use a risk control mechanism such as ( stop loss, position size, pair trad or hedge).

Resources

• Trend lines and making money in the market

[cynvela]

on 11/15/2008 Interesting information. Thanks! 5*
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http://www.ehow.com/how_4601383_maximize-earnings-ehow.html