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How to Draw a Trendline using the Close or High/Low
A common dilemma that many traders face, especially beginners, is which price is more important to use when drawing a trendline?
Is close the most important price, or should we use the low price for an up trendline and the high price for the down trendline?
Well, for the close price advocates, Charles Dow himself considered the close price as the most important price.
However, we need to have in mind that Charles Dow lived in the 19th century when computers didn’t exist! So those “old school” traders used to record prices on a piece of paper every day!
Nowadays, things are quite different. Thankfully! The advancements in technology, computers, etc allow viewing prices in many ways and timeframes.
Additionally, all trading platforms provide not only the close price but also the open, high and low price.
So, if prices decline to a lower level and then bounce off and close higher what does it mean to us as traders?
Maybe the market rejected the lower level for some reason and prices moved and closed higher? Or differently put, prices found support at the lower level and bounced up?
So, in this case, we could use the low price instead.
Similarly, if prices rise and then subsequently decline to close lower, what does it mean?
Well, it simply means that high prices were rejected by the market as they found resistance, and this is enough for us to use the high price instead of the close!
That should clear things up now!
