Trendlines and Channels

Hey friends, welcome to Stock’s knows. In today’s article, we will understand most basic but most useful concept in technical analysis: TrendLines and Channels.
Though drawing trendline and the channel is very easy, they are most useful in technical analysis.

  1)Trendlines:

The trendline is a line which connects minimum two highs or lows of any certain trend. There are two types of trend lines: Uptrend line and Downtrend line.

    a)Uptrend line:

We can draw an uptrend line by connecting minimum two lows of an uptrend. Uptrend line is drawn below the lows of an uptrend from left to the top right side. Any third low of existing trend need to respect the uptrend line, it is the condition for confirmation of uptrend line.

Breakout of Uptrend Line
(Image source: Investing.com)

Uptrend line is mostly used to find support areas for an uptrend. Violation or breakdown of uptrend line is the signal of change in trend.

b)Downtrend Line:

We can draw a downtrend line by connecting minimum two highs of a downtrend. Downtrend line is drawn above the highs of a downtrend from left to right bottom side. Any third high of existing downtrend need to respect the downtrend line, it is the condition for confirmation of downtrend line.

Breakout of Downtrend Line
(Image source: Investing.com)

Downtrend line is mostly used to find resistance areas for a downtrend. As a rule, the longer a trendline has been in effect and the more times it has been tested, the more significant it becomes. Violation or breakdown of downtrend line is the signal of change in trend.

  2)Channels:

Channel lines are drawn parallel to the main trend line. Channels provide both support and resistance areas of an existing trend. There are two types of channels.

a)Rising Channel:

Rising channel is drawn for an uptrend. Rising channel line is drawn by connecting minimum two highs of an uptrend line which must be parallel to uptrend line. Rising channel is formed by both channel line and uptrend line.

Rising Channel
(Image source: Investing.com)

The more time channel has been tested on both upper and lower side the more significant it becomes.

b)Falling Channel:

The falling channel is drawn for the downtrend. Falling channel line is drawn by connecting minimum two lows of a downtrend line which must be parallel to downtrend line. The falling channel is formed by both channel line and downtrend line. The more time channel has been tested on both upper and lower side the more significant it becomes.

Falling Channel
(Image source: Investing.com)

One can use both channels for buying near the lower line and selling near the upper line of any rising or falling channel.

Great use of trendline is in trading while breakout happens. One can go long when breakout of downtrend line happens and go short when breakout of uptrend line happens.

These were all about both trend lines and channels. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.