How To Draw Stock Trend Lines and Channels on Stocks Charts
Sometimes support and resistances are formed diagonally in a similar way like a staircase. This forms a stock trend which is a sustained movement in one direction either upwards or downwards.
A stock trend line depicts the points of support and resistance for the stock price, depending on the direction of the stocks trading market. For an upward moving stock market trend - the stock trend line will shows the points of support and for a downward moving stock market trend - the stock trend line will show the areas of resistance - stock trend lines are mainly used by many stocks traders to determine these resistance and support levels on stock charts.
A Stock Trend line is a slanting straight line that connects two or more stocks price points and then extends into the future to act as a level of support or resistance. There are two different types of stock trend lines: upward stock trend line and downward stock trend line. Stock trend line is an aspect of stocks trading analysis that uses stock line studies to try and predict where the next stocks price move will head to. A stock trader must know how to draw and interpret stock signals generated by this stock trend line tool.
The basis of this stocks trading analysis is based upon the idea that stock markets move in trends. Stock trend lines are used to show three things.
- The general direction of the stocks trading market - up or down.
- The strength of the current stock trend - and
- Where future support and resistance will be likely located
If stock trend lines forms in a certain direction then the stocks trading market usually moves in that direction for a period of time until a time when this stock trend line is broken.
Drawing these stock trend lines on a stock chart shows the general stock trend of the stocks trading market which can either be upward or downward.
Below is an example of how to draw these stock trend lines on stock charts
The MT4 stock trading software provides stock charting tools for drawing these stock trend lines on stock charts. To draw stock trend lines onto a stocks trading chart, stocks traders can use the stock trading tools provided on the MT4 stock trading software that is shown below.
To draw stock trend lines on a stock chart just click the Stocks MT4 Draw Stock Trend Line Tools as shown above on the MT4 stocks trading platform technical analysis software and select point A where you want to start drawing the stock trend line and then point B where you want the stock trend line to touch. You can also right click on the stock trend line and on the properties option select the option to extend its ray by ticking the "ray check box", if you do not want to extend the stock trend line, then uncheck this option in your MT4 stocks trading platform. You can also change other stock trend line properties such as color and width on this property popup window of the stock trend line properties. You can download MT4 software and learn stock trend line technical analysis with it.
The stock trend is your friend. Is a popular saying among investors because you should never go against it. This is the most reliable method to trade Stock because once stock prices start to move in one direction they can move in that particular direction for quite some time - therefore using this stock trend trading method presents opportunity to make profits from the stocks trading market.
Principles of How to Draw Stock Trading Trend Lines
Use candlestick stock charts
- The points used to draw the stock trendline are along the lows of the stocks price bars in a rising stock market. An upward bullish stock trend move is defined by higher highs and higher lows.
- The points used to draw the stock trend line are along the highs of the stocks price bars in a falling market. A downward bearish stock trend move is defined by lower highs and lower lows.
- The points used to draw stock trend lines are extremes points - the high or the low stock price. These extremes are important because a close beyond the extreme tells investors the stock trend might be changing. This is an entry or an exit signal.
- The more often a stock trend line is hit but not broken, the more powerful its signal.
There are two main ways of trading this stock trend line technical analysis setup:
- The Stock Trend Line Bounce - Stock Trend Line Bounce
- The Stock Trend Line Break - Stock Trend Line Break
Technical Analysis Methods of Stock Trading Trend Lines
The stock trend line bounce is a continuation stock signal where stocks price bounces off this stock trend line to continue moving in the same direction. In a downward stock trend, the stocks trading market will bounce downwards after hitting this stock trend line level which is the resistance level. In an upward stock trend, the stocks trading market will bounce upwards after hitting this stock trend line level which is the support level.
The stock trend line break is a reversal stock signal where the stocks trading market goes through the stock trend line and starts moving in the opposite direction. When a up stock trend is broken then the sentiment of the stocks trading market reverses and becomes bearish and when a down stock trend is broken then the stocks trading market sentiment reverses and becomes bullish.
For very strong stock trends, after this stock trend line break signal, the stocks price will consolidate for some time before moving in the opposite direction. For short term stock trends then this stock trend line break stock signal will mean stocks price may reverse immediately.
In stock trading, both the stock trend line bounce and the stock trend line break that are used in technical analysis charts are based upon these stock trend line levels being support and resistance levels.
Entry, Exit and 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 stock trend lines. The stock trend line bounce is a low-risk entry method used by stocks traders to place entry trades after stocks price has retraced. Stock trades are setup along these stock trend line levels and a stop loss placed just above or below these stock trend lines.
The stock trend line break is a crucial indicator of possible stock trend reversal. When the stock trend line is broken the stocks price starts move in the opposite direction. This provides an early exit signal for stocks traders to exit their open trades and take profits. When there a penetration of these stock trend line levels, it is a signal that the stocks price can start moving in the opposite direction.
Unlike other stocks trading analysis indicators there is no formula used to calculate the stock trend line, this stock trend line formation is just drawn between two chart points on the stocks trading chart.