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Trendlines are widely used in technical analysis. But it should be noted that there is not consensus of opinions about methods of their building and interpreting. So nobody is surprised at the fact that different analysts using identical data of the same time period draw absolutely different trendlines.

A trendline is a straight line that connects two important minimum or maximum points in the chart. Any amount of secondary and small trends can be found within the main trend. their lengths can vary within a rather wide range. It should be noted that a trendline should not intersect other prices between these two points. A trendline represents a resistance or support pass-through where price changes within the range of the pass-through.

Prices can break through ascending and descending trendlines, as well as support and resistance levels, when the investors' expectations change.

The trendlines can be categorized as follows:

  • Downtrend is characterized through sequential decreasing of maximum prices. It can also be considered as descending resistance level: Bears set the pace as they push prices down.

  • Uptrend is characterized through sequential increasing of minimum prices. It can also be considered as ascending support level: Bulls set the pace as they push prices up.

  • Sideways Trend - price does not practically move at all.

Trendlines can be categorized by their importance using the five indications below:

  • time scale: the larger is the time scale, the more important is the trendline. The trendline in the weekly chart shows a more important trend than that in the daily chart, and the latter show a more important trend than the trendline in the 1-hour chart;

  • length: the longer is the trendline, the more reliable it is. The short trendline displays the behavior of masses within a short time interval, and a longer trendline displays their behavior within a longer period of time;

  • how many times prices touch the trendline: the more is the count of touches, the more reliable is the trendline. A preliminary trendline is drawn through only two points, sp the third point makes it more reliable and four or five points show that the group prevailing in the market at this moment has a significant potential;

  • slope angle: the angle between the trendline and the horizontal line reflects the intensity of emotions among the prevailing market crowd. An abrupt trendline means that the prevailing crowd is dynamic, and a relatively flat trendline means that the prevailing crowd is rather inert. A flat trend usually develops longer;

  • volume of transactions: it reflects how serious the players are, as well as the count of participants interested in retaining the existing trend. The increased Volume usually serves as confimation of the preceding trend.

To draw a trendline, it is enough to have two points it to be drawn through, and one more point "to confirm" the trend. The trendline exists until it is broken through due to a price flick up or down. The "dog-legs" in trendlines are relatively rare. If there is no consolidation, the longer it does not happen, the sharper is the subsequent turn.

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