Trend, Trendlines and Channels

Beginner

In this Master Academy educational video and article, we are introducing the concept of Trend, Trendlines and Channels.

What is Trend?

Markets tend to move in a general direction or trend

An Up Trend

  • An up trend is a sequence of higher highs and higher lows
  • In an up trend, price will rally to a high (peak), then sell off to a low (trough)
  • A market in an up trend has each peak in the rally reaching a higher level than the previous peak
  • Each low in the rally must be higher than the previous rally low
Up Trend

A Down Trend

  • A down trend is a sequence of lower highs and lower lows
  • In a down trend, price will selloff to a new low (trough), then rally to a high (peak)
  • A market in a down trend has each low in the selloff reaching a lower level than the previous low
  • Each high in the selloff must be lower than the previous selloff high
Downtrend

Trend Lines

  • Technical analysis is built on the assumption that prices trend
  • A trend line is a straight line that connects two or more price points to represent the trend in the market
  • The Trend line extends into the future to act as a line of support or resistance
  • Trend lines are used to show trend direction and critically used in the identification of trend extension or reversal
  • The more points used to draw the trend line, the more valid is the support or resistance represented by the trend line

Up Trend Line

  • An up trendline is drawn off the lows of an upward trend
  • It has a positive slope
  • It is formed by connecting two or more low points
  • Then with a third, confirming touch
  • This line represents the market support every time it moves from a high to a corrective low
  • As long as prices remain above the trendline, the uptrend is considered solid and intact
  • A break below the uptrend line indicates that the trend has weakened and a change in trend could be imminent
Up Trendline

Down Trend Line

  • A down trendline is drawn off the highs of an downward trend
  • It has a negative slope
  • It is formed by connecting two or more high points
  • Then with a third, confirming touch
  • This line represents the market resistance every time it moves from a low to a corrective high
  • As long as prices remain below the trendline, the downtrend is considered solid and intact
  • A break above the down trend line indicates that the trend has weakened and a change in trend could be imminent
Down Trendline

Channels

  • A channel is a parallel line drawn in relation to either an up or down trend line
  • This parallel line, should be drawn off the first, notable reaction high in an up trend and reaction low in a down trend
  • In the examples below, the trend line is first drawn between points 1 and 2.
  • Then, the channel is a parallel line to the trend line and placed at the swing high or low between points 1 and 2, point 3.

Up Channel

Up Channel

Down Channel

Down Channel

Editor in chief

Steve Miley is the Market Chartist and has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued

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