How to Draw Stock Indices Trend Lines & Channels on Charts

Sometimes support & 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 upward or downward.

A stock trend-line depicts the points of support & resistance for the price, depending on the direction of the market. For an upward moving stock market trend - trend line will shows the points of support and for a downward moving stock market trend - trend line will show the areas of resistance - stock trend-lines are mainly used by many traders to determine these resistance and support levels on stock index 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 stock trend lines: upward stock trend line and downward stock trend line. trend-line is an aspect of technical analysis that uses stock indices line studies to try & 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 technical analysis is based upon the idea that markets move in trends. trend-lines are used to show 3 things.

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

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

Drawing these trendlines on a chart displays the general trend of the stock market which can either be upwards or downward.

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

Course Tutorial: How to Draw Up-ward Stock Indices Trend Line and Trade Upward Stock Indices Trend Move

Course Tutorial: How to Draw Downwards Stock Indices Trendline and Trade Downward Stock Indices Trend Move

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

To draw trendlines on a 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 trading platform. You can also change other trend-line properties such as color & width on this property pop up window of the trend-line properties. You can download MT4 software and learn trend-line technical analysis with it.

The stock trend is your friend. Is a popular saying among traders because you should never go against it. This is the most reliable method 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 trading market.

Principles of How to Draw Indices Trend-Lines

1. Use candle charts

2. The points used to draw the trend-line are along the lows of the price bars in a rising stock market. An up-wards bullish trend move is defined by higher highs & higher lows.
3. The points used to draw the trend-line are along the highs of the price bars in a downward moving market. A downwards bearish trend move is defined by lower highs and lower lows.
4. The points used to draw 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 trend of stock indices may be changing. This is an entry or an exit signal.
5. The more often a trendline is hit but it is not broken, the more powerful its trading signal.

There are two main ways of trading this stock trendline technical analysis setup:

1. The Stock Indices Trend-Line Bounce - Trend Line Bounce
2. The Stock Indices Trend-Line Break - Trend Line Break

Analysis Methods of Indices Trend Lines

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

The stock trend-line break is a reversal signal where the stock market goes through the trend-line and starts heading in the opposite market direction. When a up trend is broken then sentiment of the stock market reverses and becomes bearish & when a down trend is broken then the stock market sentiment reverses & becomes bullish.

For very strong stock trends, after this stock trendline break signal, the price will consolidate for some time before heading in the opposite market direction. For short term stock trends then this stock trendline break signal will mean stock index price direction may 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 & Setting stops:

This stock 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 trend line bounce is a low-risk entry technique used by traders to place entry trades after stock index price has retraced. trades are setup along these trend line levels and a stop loss placed just above or below these trend lines.

The stock trend-line break is a crucial technical indicator of possible stock trend reversal. When the trend-line is broken the 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's a signal that the price can start moving in opposite direction.

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