How to Draw Stock Indices Trend Lines & Channels on Stock Index Charts
Sometimes support & resistances are formed diagonally in a similar way like a staircase. This forms a stock indices trend which is a sustained movement in one direction either upward or downward.
A stock indices trend line depicts the points of support & resistance for the stock index price, depending on the direction of the market. For an upward moving stock indices market stock indices trend - trend line will shows the points of support and for a downward moving stock indices market stock indices trend - trend line will show the areas of resistance - stock indices trend lines are mainly used by many traders to determine these resistance and support levels on stock index charts.
A Stock Indices 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 two different types of stock indices trend lines: upward stock indices trend line and downward stock indices trend line. Stock Indices trend line is an aspect of stock index technical analysis that uses stock indices line studies to try and predict where the next stock index price move will head to. A trader must know how to draw & interpret signals generated by this trend line tool.
The basis of this stock indices technical analysis is based upon the idea that stock indices markets move in trends. Stock Indices trend lines are used to show 3 things.
- The general direction of the market - up or down.
- The strength of the current stock indices trend - and
- Where future support & resistance will be likely located
If stock indices trend lines forms in a certain direction then the stock indices market usually moves in that direction for a period of time until a time when this stock indices trendline is broken.
Drawing these trendlines on a stock indices chart shows the general stock indices trend of the stock indices market which can either be upwards or downward.
Below is example of how to draw these trend lines on stock index trading charts
Course: How to Draw Upward Stock Indices Trend Line and Trade Upward Stock Indices Trend Move
Course: How to Draw Downward Stock Indices Trendline and Trade Downward Stock Indices Trend Move
The MT4 software provides stock indices charting tools for drawing these trend lines on stock index charts. To draw stock indices trend lines onto a stock indices chart, stock index traders can use the stock indices tools provided on the MT4 software that is shown below.
To draw stock indices trendlines on a stock indices chart just click the Stock Indices MT4 Draw Stock Indices Trend Line Tools as shown above on the MT4 platform technical analysis software and select point A where you want to start plotting the trendline and then point B where you want the trend line to touch. You can also right-click on trendline and on properties option select the option to extend its ray by ticking the 'ray check box', if you don't want to extend the trendline, then uncheck this option in your MT4 platform. You can also change other stock indices trend line properties such as color and width on this property popup window of the trend line properties. You can download MT4 software and learn stock indices trendline technical analysis with it.
The stock indices trend is your friend. Is a popular saying among traders because you should never go against it. This is the most reliable technique to trade Stock Indices because once prices begin to move in one particular direction they can continue moving in that particular direction for quite some time - therefore using this trend trading technique presents opportunity to make profits from stock index trading market.
Principles of How to Draw Indices Trend Lines
Use candle charts
- The points used to draw the trendline are along the lows of the stock index price bars in a rising stock indices market. An upwards bullish stock indices trend move is defined by higher highs & higher lows.
- The points used to draw the trendline are along the highs of the stock index price bars in a downward moving market. A downward bearish stock indices trend move is defined by lower highs and lower lows.
- The points used to draw stock indices trend lines are extremes points - the high or the low stock index price. These extremes are important because a close beyond the extreme tells investors the stock indices trend of stock indices might be changing. This is an entry or an exit signal.
- The more often a stock indices trendline is hit but it is not broken, the more powerful its trading signal.
There are two main ways of trading this stock indices trendline technical analysis setup:
- The Stock Indices Trend Line Bounce - Stock Indices Trend Line Bounce
- The Stock Indices Trendline Break - Stock Indices Trend Line Break
Technical Analysis Methods of Indices Trend Lines
The stock indices trendline bounce is a continuation stock indices signal where stock index price bounces off this stock indices trend line to continue moving in the same direction. In a downward stock indices trend, the stock indices market will bounce downwards after hitting this stock indices trend line level which is the resistance level. In an upward stock indices trend, the stock indices market will bounce upwards after hitting this stock indices trend line level which is the support level.
The stock indices trendline break is a reversal signal where the stock indices market goes through the trend line & starts moving in the opposite direction. When a stock indices up trend is broken then sentiment of the stock indices market reverses and becomes bearish and when a stock indices down trend is broken then the stock indices market sentiment reverses & becomes bullish.
For very strong stock indices trends, after this stock indices trendline break signal, the stock index price will consolidate for some time before moving in the opposite direction. For short term stock indices trends then this stock indices trendline break stock indices signal will mean stock index price direction might reverse immediately.
In stock indices, both the trend line bounce and 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 stock indices trend line trading method is used to determine good entry and exit points, protective stops are placed just above or below these trend lines. The stock indices trend line bounce is a low-risk entry method used by traders to place entry trades after stock index price has retraced. Indices trades are setup along these trend line levels and a stop loss placed just above or below these trend lines.
The stock indices trendline break is a crucial technical indicator of possible stock indices trend reversal. When the trend line is broken the stock index price starts move in the opposite direction. This provides an early exit signal for stock index traders to exit their open trades and take profits. When there a penetration of these trend line levels, it is a signal that the stock index price can start moving in opposite direction.
Unlike other stock indices technical analysis indicators there is no formula used to calculate the trend line, this stock indices trend line formation is just plotted between two chart points on the stock index trading chart.
