UPTREND

A trend line is a straight line that connects two or more price points and then extends into the future
to act as a line of support or resistance.
The second low must be higher than the first for the line to have a positive slope. Uptrend lines act
as support and indicate that net-demand (demand less supply) is increasing even as the price rises.
A rising price combined with increasing demand (green bars) is very bullish.
As long as prices remain above the trend line, the uptrend is considered solid and intact. A break
below the uptrend line indicates that net-demand has weakened and a change in trend could be
imminent.

DOWNTREND
A downtrend line has a negative slope and is formed by connecting two or more high points.
The second high must be lower than the first for the line to have a negative slope.
Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing
even as the price declines.
A declining price combined with increasing supply (red bars) is very bearish.
As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above
the downtrend line indicates that net-supply is decreasing and that a change of trend could be
imminent.

When drawing a trend line, choose two significant high or low points on the chart and draw the line
extending it as far as required. If a trend trader bought this chart somewhere above the second Blue
arrow he would have been able to stay in the trade with no worries, and would be nearly 100 x
S&P500 points better off, simply by drawing the Blue trend-line and waiting for price to break the
trend before exiting his position. Trend trading is ideal for swing trading and longer term
investments.
In this case there is a trend forming resistance across the highs, so the market is either going to
need something to push it up through resistance to continue the trend, or there may be a break
down in prices coming.

How to draw trend lines - channel trend lines -Trending stock prices are very likely to fluctuate
withing a price channel. A channel is produced by drawing trend lines parallel to an existing trendline creating a price channel.
Once we had drawn the parallel to our Blue trend-line from the previous chart, we would have
created this price channel and by using this method we would have been expecting resistance when
price hits the upper trend line again (where the first Red arrow is). Prices did find resistance at this
point but never broke back down through the lower channel trend line keeping the larger up trend
intact.

Using trend lines to trade

There are two predominant methods in which to trade using trend lines:

Entering when the price finds support or resistance at the trend line

Entering when the price breaks through the trend line

Trend line as support or resistance

If a trend line has been identified and it is holding as support or resistance, then you can use the trend line to enter
into the market once the price comes back to it.

es1 Short entry after the price finds resistance at the trend line
sl2 Stop loss above the trend line
The chart above shows the trend line being used as resistance and the price using it to find an entry.
A stop loss can be put on the other side of the trend line. The size of the stop loss depends on the strategy involved.

Trend line break

The trend line break method uses the actual breakout of the line to determine an entry. When the price breaks
through a trend line, it is no longer valid as support or resistance and it is likely that the price will continue to
reverse direction.
There are two ways to enter using a trend line break: an aggressive entry and a conservative entry.

An aggressive entry
An aggressive way to enter using a trend line break is to enter as soon as the candle breaks through and closes on
the other side of the trend line.

es1 Short entry after the price broke through the trend line to the downside
sl2 Stop loss is placed above the trend line
The chart above demonstrates that once the candle closes on the other side of the trend line, then you can enter
immediately. A stop loss can be placed on the other side of the trend line.

A conservative entry
A more conservative way of trading the trend line break is to wait until the price has broken through the trend line
and then tested from the other side as either support or resistance.

number_1 Price breaks through the trend line to the downside

number_2 Wait for the price to come back to the trend line and find resistance
es3 Once determined that the breakout is true, enter into a short entry
sl4 Stop loss is placed above the trend line
The chart above shows a trend line that has been broken after acting as support. The price then tested it from the
other side as resistance, further confirming that the breakout is likely to continue. After the trend line has been
tested as resistance, you can enter a short position and place a stop loss on the other side of the trend line.

Caution using trend line breaks

In order to trade a breakout of a trend line, it is a good idea to wait until a candlestick actually closes on the other
side, or tests the other side of the trend line as either support or resistance. Without a close on the other side of the
trend line, it is generally not considered an actual break.

number_1 False breakout

In the above chart, the price moved below the trend line. However, it retraced and the candlestick closed above the
trend line. If a trader entered as soon as the price broke through, it would have been a losing trade.

Summary
So far, you have learned that ...

... trend lines are drawn at an angle and are used to determine a trend and help make trading decisions.

...in an uptrend, trend lines are drawn below the price and in a downtrend, trend lines are drawn above the
price.

... to draw a trend line in an uptrend, two lows must be connected by a straight line.

... to draw a trend line in a downtrend line, two highs must be connected by a straight line.

... a trend line should be connected by at least three highs or lows to make it valid.

... the more times the price touches the trend line, the more valid it is.

... trend lines can be used as support or resistance, in which case you can enter trades when the price touches
the trend lines.

... another way to trade using trend lines is a trend line break, where the price breaks through the trend line.