Concept
Trendlines: Types and How They Are Drawn
A trendline is a straight line drawn along a series of highs or lows to summarise the direction of movement. It is a drawing tool applied by the observer, not a property of the price series itself.
How to read it
- An ascending trendline is drawn beneath a sequence of rising lows. A descending trendline is drawn above a sequence of falling highs. A horizontal line marks an area where price has repeatedly stalled at a similar level.
- Two points define a line; a third touch is what makes people take it seriously. More touches mean more observers are looking at roughly the same line.
- Lines can be drawn through candle bodies or wicks, and the two choices produce different lines. Neither is correct — it is a convention the drawer picks.
Why two traders disagree
An index makes lows at 21,800, then 22,050, then 22,240. One trader connects the first and third lows, producing a line that currently sits at 22,400. Another connects the first and second, producing a line at 22,600. Price trades down to 22,450. To the first trader the line is intact; to the second it has been broken. Both drew defensible lines from the same data. This is the ordinary case, not an edge case, and it is the main reason trendline-based claims are hard to evaluate.
What it does not tell you
- Trendlines are subjective. Give the same chart to five traders and you will get five different lines, which means any claim about a line "holding" depends on whose line is being discussed.
- A line drawn today will be redrawn tomorrow as new highs and lows print. This constant adjustment makes retrospective analysis look far cleaner than the live experience.
- On a logarithmic scale a trendline sits differently than on a linear one, so even the axis choice changes the picture.
Frequently asked questions
What are the types of trendlines?
Ascending lines drawn under rising lows, descending lines drawn over falling highs, and horizontal lines marking areas where price has repeatedly stalled. Parallel pairs form channels.
How many touches make a trendline valid?
Two points define a line and a third touch is conventionally treated as confirmation. This is convention rather than a tested threshold — more touches simply mean more people are watching a similar line.
Should trendlines be drawn on wicks or bodies?
Both conventions are in use and they produce different lines. Neither is correct in any objective sense, which is part of why the technique is subjective.
Do trendlines actually work?
They summarise the direction of past movement, which is useful for description. Because they are drawn differently by different observers and redrawn as new data arrives, claims about their predictive reliability are difficult to test.
Related
- Trend Channels — Concept
- Support and Resistance — Concept
- Trend Structure: Higher Highs and Lower Lows — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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