How to Draw Trend Lines and Channels on Stock Charts

Sometimes support and resistances are formed diagonally in a similar way like a stair case. This forms a trend which is a sustained movement in one direction either up-wards or down-wards.

A trendline depicts the points of support and resistance for the stocks price, depending on the direction of the market. For an upward moving stocks market stocks trend - the trend line will shows the points of support and for a downward moving stocks market stocks trend - the trend line will show the areas of resistance - trendlines are mainly used by many traders to determine these resistance and support levels on stocks charts.

A Trend line is a slanting straight line that connects two or more price points and then extends into the future to act as levels of support or resistance. There are 2 different types of stocks trend lines: upward stocks trend line and downward stocks trend line. trendline is an aspect of stock analysis that uses stocks line studies to try & predict where the next stocks price move will head to. A trader must know how to draw & interpret signals generated by this trend line tool.

The basis of this stocks technical analysis is based upon the idea that stocks markets move in trends. trendlines are used to show Three things.

• The general direction of the market - up or down.
• The strength of the current stocks trend - and
• Where future support & resistance will be likely located

If stocks trend lines forms in a certain direction then the stocks market usually moves in that direction for a period of time until a time when this stocks trendline is broken.

Drawing these trendlines on a chart portrays the general stocks trend of the stocks market which can either be upward or downward.

Below is example of how to draw these trend lines on stocks charts

Tutorial: How to Draw Upward Trend Line and Trade Upward Trend Move

Course: How to Draw Downward Trendline & Trade Downwards Trend Move

The MT4 software provides stocks charting tools for drawing these trend lines on charts. To draw stocks trendlines onto a chart, traders can use the stocks tools provided on the MT4 software that is shown below.

To draw stocks trendlines on a chart just click the MT4 Draw Trend Line Tools as shown above on the MT4 platform analysis software and select point A where you want to start drawing the trendline and then point B where you want the trend line to touch. You can also right click in trendline and on the properties option choose the option to extend its ray by checking the "ray check box", if you don't want to extend the trend line, then uncheck this option in your MT4 software. You can also change other stocks trendline properties such as color & width on this property pop up window of the trend line properties. You can download MetaTrader 4 software and learn stocks trendline analysis with it.

The stocks trend is your friend. Is a popular saying among traders because you should never go against it. This is most reliable method to trade Stocks because once prices begin to move in one specific direction they can continue moving in that specific direction for quite some time - therefore using this trend technique presents the opportunity to make profits from the market.

Principles of How to Draw Trendlines

1. Use stocks candle charts

2. The points used to draw the trend line are along the lows of the stocks price bars in a rising stocks market. An up-wards bullish stocks trend move is defined by higher highs & higher lows.
3. The points used to draw the trend line are along the highs of the stocks price bars in a downward moving market. A downward bearish stocks trend move is defined by lower highs and lower lows.
4. The points used to draw stocks trendlines are extremes points - the high or the low stocks price. These extremes are important because a close beyond the extreme tells investors the stocks trend of stocks may be changing. This is an entry or an exit signal.
5. The more often a trendline is hit but it's not broken, the more powerful its signal.

There are 2 main ways of trading this stocks trendline analysis setup:

1. The Trendline Bounce - Trend Line Bounce
2. The Trendline Break - Trend Line Break

Technical Analysis Methods of Trend Lines

The stocks trendline bounce is a continuation stocks signal where stocks price bounces off this stocks trend line to continue moving in the same direction. In a downward stocks trend, the stocks market will bounce downwards after hitting this stocks trend line level which is the resistance level. In an upward stocks trend, the stocks market will bounce upward after hitting this stocks trend line level which is the support level.

The stocks trendline break is a reversal signal where the stocks market moves through the trend line and starts moving in the opposite market direction. When a up trend is broken then the sentiment of the stocks market reverses & becomes bearish and when a down trend is broken then the stocks market sentiment reverses & becomes bullish.

For very strong stocks trends, after this stocks trendline break signal, the stocks price will consolidate for some time before moving in the opposite market direction. For short term stocks trends then this stocks trendline break stocks signal will mean stocks price direction may reverse immediately.

In stocks, both the trend line bounce & the trendline break that are used in technical analysis charts are based upon these trend line levels being support & resistance areas.

Entry, Exit and Setting stops:

This stocks trend line method is used to determine good entry and exit points, protective stops are placed just above or below these trend lines. The stocks trend line bounce is a low-risk entry technique used by traders to place entry trades after stocks price has retraced. trades are setup along these trend line levels and a stop loss placed just above or below these trend lines.

The stocks trendline break is a crucial indicator of possible stocks trend reversal. When the trend line is broken the stocks price starts move in the opposite direction. This provides an early exit signal for traders to exit their open trades and take profits. When there a penetration of these trend line levels, it's a signal that the stocks price can start moving in opposite direction.

Unlike other stocks technical analysis indicators there is no formula used to calculate the trend line, this stocks trend line formation is just plotted between two chart points on the chart.