How to Draw Stocks Trend Lines and Channels on Stock Charts
Sometimes support & resistances are formed diagonally in a similar way like a staircase. This forms a stocks trend which is a sustained movement in one direction either upwards or downwards.
A stocks trend line depicts the points of support & 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 - stocks trend-lines are mainly used by many traders to determine these resistance and support levels on stocks trading charts.
A Stocks 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 stocks trend lines: upward stocks trend line and downward stocks trend line. Stocks trend line is an aspect of stock trading technical analysis that uses stocks line studies to try and 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. Stocks trend lines are used to show 3 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 trend line is broken.
Drawing these trendlines on a stocks chart shows the general stocks trend of the stocks market which can either be upwards or downward.
Below is example of how to draw these trend lines on stocks trading charts
Guide: How to Draw Upward Stocks Trend Line and Trade Upward Stocks Trend Move
Course: How to Draw Downward Stocks Trendline & Trade Downwards Stocks Trend Move
The MetaTrader 4 stocks software provides stocks charting tools for drawing these trend lines on stock charts. To draw stocks trend lines onto a stocks chart, stock traders can use the stocks tools provided on the MT4 software that is shown below.
To draw stocks trendlines on a stocks chart just click the Stocks MT4 Draw Stocks Trend Line Tools as shown above on the MT4 platform technical 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 trend-line and on the properties option choose the option to extend its ray by checking the "ray check box", if you do not want to extend the trendline, then uncheck this option in your MT4 platform. You can also change other stocks trend line properties such as color and width on this property popup window of the trend line properties. You can download MetaTrader 4 software and learn stocks trend-line technical 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 Trading 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 the stock trading market.
Principles of How to Draw Stocks Trend Lines
Use stocks candle stick charts
- The points used to draw the trendline are along the lows of the stocks price bars in a rising stocks market. An upwards bullish stocks trend move is defined by higher highs & higher lows.
- The points used to draw the trendline 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.
- The points used to draw stocks trend lines 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 might be changing. This is an entry or an exit signal.
- The more often a stocks trendline is hit but it's not broken, the more powerful its signal.
There are 2 main ways of trading this stocks trend-line technical analysis setup:
- The Stocks Trend Line Bounce - Stocks Trend Line Bounce
- The Stocks Trendline Break - Stocks Trend Line Break
Technical Analysis Methods of Stocks Trend Lines
The stocks trend-line 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 upwards after hitting this stocks trend line level which is the support level.
The stocks trendline break is a reversal signal where the stocks market goes through the trend line and starts moving in the opposite direction. When a stocks up trend is broken then the sentiment of the stocks market reverses and becomes bearish and when a stocks down trend is broken then the stocks market sentiment reverses & becomes bullish.
For very strong stocks trends, after this stocks trend-line break signal, the stocks price will consolidate for some time before moving in the opposite direction. For short term stocks trends then this stocks trend-line break stocks signal will mean stocks price direction may reverse immediately.
In stocks, both the trend line bounce & the trend-line 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 trading 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 method used by traders to place entry trades after stocks price has retraced. Stocks 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 technical 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 stock 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 stock chart.
