Let us first understand what is a trendline and how to draw a trendline properly.
A Trend line is the same as drawing horizontal support and resistance. The only difference is, a trendline is not a horizontal line but sloping. The below image shows an example of a trendline.
There are basically two types of trendline: up trend line and down trend line.
Upward Trend Line: “Sloping” area on the chart that shows upward buying pressure.
Downward Trend Line: “Sloping” area on the chart that shows downward selling pressure.
Now, let us learn how to draw a trendline properly.
- Focus on the major swing highs or swing low and ignore everything else.
- Draw a line using at least two major swing highs or swing lows.
- Adjust the line so that it touches most of the swing highs or swing lows.
Now, let us understand how to use the trendline in our trading.
For better risk and rewards, try to enter in stock near the trendline. It helps to keep tighter stop loss. If you identify support and resistance level and combine that with the trend line, there is a high probability that the trade will come in your favor. Now, the real question is, when do you have to enter a trade.
For this, you can use candlesticks patterns like a hammer, engulfing, morning star, evening star, etc. Whenever you find a reversal near support and resistance and seeing candlestick pattern, try to take a trade on the next candle and keep your below the trendline for uptrend and above the trendline for the downtrend.
At Pathfinders, you will learn various strategies to trade in stock using trendline. If you excel in drawing trendline properly, your chances of winning trades will higher than losing trades.
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