How Do You Analyze Charts using Trend-Lines?
How to Interpret Charts using Trend Lines
To interpret charts using trends traders will have first to identify a trend.
How Do you identify a trend on a chart - to identify a trend on a chart traders will need to learn the correct way of determining a trend - a trend is a general price direction in the price movement where price movement is either up/down.
When the trend is moving up-wards it means that price movement is moving higher & prices are closing higher than where they opened and therefore the general price trend direction of prices is upwards.
When the trend is moving down-wards it means that price movement is moving lower & prices are closing lower than where they opened and therefore the general price trend direction of price movement is downward.
To identify a trends on charts traders will use a sequence of price highs or price lows.
Traders will then draw a trendline connecting price highs or price lows & this trendline will then determine the direction of the trend whether upwards or downward.
Upward Trend
To identify an upwards trendline on charts - traders will identify price lows that are sloping up-ward and then use these price lows to draw a trendline - upwards trend-line to connect these price lows & once this upwards trendline is drawn on the chart it will then be used to identify the upward trend.
Drawing a Upwards Trend Line
When the price moves upwards it forms higher highs and higher lows forming an upwards movement of price. An upwards trendline then can be drawn by connecting these price higher lows.
To draw this upwards trendline - we use support levels. To plot the upwards trendline correctly two support levels on price chart are needed.
Upwards Trend-Line on Chart
Downward Trend
To identify a downwards trend-line - traders will identify price highs which are sloping downward and then use these price highs to draw a trend line - downwards trend-line to connect these price highs & once this downwards trendline is plotted on a chart it will then be used to identify the trading down-wards trend.
Drawing a Downward Trend-Line
In learning how to draw trendlines and determining trends on charts, you need to know that when the price movement are moving they form lower lows & lower highs forming a downwards price direction. These are points which are then used to plot the downward trend line.
To determine a downward trend - we use resistance zones to plot a downwards trendline & to determine a downward trend correctly 2 resistance levels on chart are needed.
Downwards Trend Line on Chart
Once traders draw and ascertain a trend using trendlines - traders will then open trades in the direction of the trend. This is because once price movement start to move in a trend direction either up-wards or down-wards - the price movement will keep moving in this direction for sometime.
How Do I Analyze Charts using Trend Lines? - How to Use Trend Line?
