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How to Draw a Trendline
Now that you guys know what a trendline is, let’s have a look at how to draw one!
It's pretty simple actually!
To draw a straight line, two points are needed. Similarly, to draw an up trendline 2 higher bottoms are required.
So, to draw an up trendline, simply draw a straight line connecting the 2 bottoms.
This is called a tentative trendline, like the one below.
Similarly, to draw a downtrend line, we connect two tops!
Now, when the trendline is verified with a third point, then it is known as a valid trendline.
Which one is more reliable?
Well, valid trendlines are more reliable and traders feel more confident that prices will find support at an up trendline or resistance at a down trendline.
In a nutshell, the more times a trendline has been tested the more reliable it is.
Additionally, the time factor is also important. The more recent the trendline has been tested the stronger it is.
For example, a trendline that has been tested 10 times in the last month compared to 10 times in the last decade is more reliable and stronger.
In addition to that, a trendline that has been intact for the last 6 months is considered stronger compared to a trendline that has not been violated the last 3 days.
When the price reaches the trendline it will subsequently bounce off, and if the price manages to breach the trendline, then the reversal will be worthwhile.
So, basically, theory has it that the breaking of a strong trendline implies a strong reversal.
Now you know how to draw a trendline!
