Trendline is a line on the chart that shows the general direction the currency pairs, stock or any other security is trending. Trendlines are one of the most basic technical indicators. If the currency pair or the stock is moving up in price, the trendline is going to slope upwards. And if the currency pair or the stock is moving down in price the trendline is going to slope downward from left to right.
Drawing Trendlines
Drawing trendlines seems to be easy and straight forward but can be tricky. So depending on how you think the currency pair or the stock is behaving, you draw a line of support in the bullish case and a line of resistance in the bearish case.
How to draw a trendline? Take a print out of the chart and draw a line with a ruler that connects two or more low points if the prices are steadily moving up or two or more high priced points if the prices are steadily moving down.
Now this should not fool you in thinking that trendlines are simple to draw. Drawing of a line connecting different points is such a subjective matter that it is difficult to consider trendlines as technical indicators. If you ask two different traders to draw a trendline on the same chart, both may draw two completely different lines. If one of the traders happens to be biased against a currency pair or stock, she may try to find a downtrend on the chart.
Despite all this inherent subjectively in drawing trendlines, most traders heavily depend on the trendline in making the buy or sell decision. So although different trendlines drawn on the same chart may appear to be different but all will have almost the same direction and almost the same slope!
Now a trendline can slope up in such a case it will be called a Bullish Trendlines. It can slope down in such a case it will be called a Bearish Trendline or it can be almost horizontal in such a case the market is choppy and moving sideways. Taking the trendline direction into consideration helps you determine the status of the market whether it is bullish or bearish.
Automated Trendlines
Good news! You can take some of the subjectivity in drawing the trendlines by using a software package that does the drawing for you. Just choose your preferred timeframe and the software will draw the trendline for you. However, using the software removes the subjectivity to a degree but cannot do so completely. There will still be some subjective component to a software drawn trendlines.
You as a user select the timeframe for the trendline that can impact on the trendline drawn by the software. So just like any computer program, what you get is what you input into the software as a data. Microsoft Excel can also draw a trendline so you can practice with that to begin with. Learn to draw trendlines correctly!
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