Trend Lines & Channels
Overview
Trend lines connect swing lows (uptrend) or swing highs (downtrend) to define the trend direction and provide dynamic support/resistance. Channels add a parallel line to create a trading range within the trend. Trend line breaks signal potential trend changes. Valid trend lines require at least two touches, with three or more being more significant.
Key Concepts
Uptrend line: connects ascending swing lows (rising support). Downtrend line: connects descending swing highs (falling resistance). Parallel channels: trend line + parallel creating a range. Inner trend lines: steeper lines within the main trend. Fan lines: multiple trend lines showing acceleration/deceleration.
Entry Signals
Buy at uptrend line support (at least third touch), Sell at downtrend line resistance (at least third touch), Trade within channel: buy at support, sell at resistance, Channel breakout trade: enter on break + retest of channel boundary
Exit Signals
Target the opposite channel boundary for range trades. For trend line break trades, measure the channel width and project from the break point. Stop beyond the trend line + buffer.
Best Timeframes
All timeframes — use higher TF trend lines for bias, lower TF for entries
Pro Tips
Be careful drawing trend lines to fit your bias. Valid trend lines should be obvious — if you have to hunt for them, they probably aren't significant. The steeper the trend line, the more likely it is to break.
More Topics in This Category
Chart Patterns (H&S, Wedges, Flags)
Chart patterns are geometric price formations that signal continuation or reversal. Major patterns include: Head & Shoulders (reversal), Double Top/Bottom (reversal), Bull/Bear Flags (continuation), Rising/Falling Wedges (reversal), Ascending/Descending Triangles (continuation/reversal). All are measured-move patterns with projected price targets.
RSI & Stochastic Oscillators
The Relative Strength Index (RSI) and Stochastic Oscillator are bounded momentum indicators that identify overbought and oversold conditions. RSI (default: 14) ranges from 0-100; readings above 70 suggest overbought, below 30 oversold. Stochastic (default: 14, 3, 3) measures where the close falls within the recent high-low range.
Divergence Trading
Divergence occurs when price action and an indicator (RSI, MACD, CCI, OBV) move in opposite directions, signaling weakening momentum and potential reversals. Regular divergence signals reversal. Hidden divergence signals continuation. Divergence is a leading signal — it warns of momentum shifts before they appear in price.
Supply & Demand Zones
Supply and demand zones are price areas where significant buying or selling previously occurred, causing a strong directional move away from the zone. Unlike traditional support and resistance which uses lines, supply and demand trading identifies zones — ranges of price — where institutional orders created imbalances. When price returns to these zones, unfilled orders may trigger a reaction, providing high-probability trading opportunities.