Trend lines are a commonly used analytical tool in technical analysis to help traders identify market trends and trade based on them. Definition of trend lines
A trend line is a linear model that fits past trends in order to anticipate the future. It is the reference line that traders in the market expect higher or lower **.
There are two ways to label trend lines
There are two ways to annotate trend lines:
Line tool callouts: Connect more than 3 ** contacts.
Parallel channel tool callouts: Connect more than 3 ** contacts and set the appropriate channel width.
A trend-following trading strategy for trend lines
The trendline trading strategy refers to trading in the direction of the continuation of the trend.
Long trend-following trading strategy: When running above the ascending trend line, near the support level of the trend line.
Short trading strategy: Sell near the resistance level of the trend line when ** is running below the descending trend line.
A contrarian trading strategy for trend lines
A trendline contrarian trading strategy refers to trading in the direction of a trend reversal.
Long contrarian trading strategy: When running above the descending trend line, near the resistance level of the trend line.
Short contrarian trading strategy: Sell near the support level of the trend line when ** is running below the ascending trend line.
Considerations for trend lines
Trend lines are fitted based on historical data, so there is a certain lag.
The trend line may be breached, so it needs to be analyzed in conjunction with other technical indicators.
An example of an application for a trend line
Long trend-following trading strategy
The chart shows that BTCUSD** is in an uptrend.
We use the Parallel Channel tool to mark the uptrend line.
After reaching the trend line support level, the ascending trend line is broken again.
We can break above the uptrend line near the price.
Short trading strategy
The chart shows that BTCUSD** is in a downtrend.
We use the Parallel Channel tool to mark the downtrend line.
After reaching the resistance level of the trend line, the downtrend line is broken again.
We can sell near the *** price that breaks through the downtrend line.
Long contrarian trading strategy
The chart shows that BTCUSD** is in a downtrend.
We mark the downtrend line.
* Runs above the descending trend line and forms an inverted head and shoulders structure.
After the inverted head and shoulders structure breaks through, step back on the neckline again.
We can be near the neckline**.
Short contrarian trading strategy
The chart shows that BTCUSD** is in an uptrend.
We mark the uptrend line.
* Runs below the uptrend line and forms a double-top structure.
After the breakthrough of the double-top structure, ** stepped back on the intensive trading area in the early stage again.
We can sell near the early trading area.
All in all, a trend line is a commonly used analytical tool in technical analysis that helps traders to judge the market trend and trade according to the trend. When using trend lines, it is necessary to pay attention to the lag of trend lines and the risk of breakout, and analyze them in combination with other technical indicators.