What is a trendline – Erzdigital

When we enter the topic of technical analysis in the field of digital currencies, we come across various concepts and tools that can be very useful in advancing the goals of traders. Among the available tools is the trend line, which is used to understand the direction and pattern of price movement.

These lines provide us with a good view of market trends and support and resistance levels. To check what a trendline is, we examine this important tool in technical analysis from various angles. So stay with us until the end of the article.

What is a trendline?

trendline (Trend Line) Or trend line The line is to determine Support level And resistance It is used in the digital currency market and other financial markets (including the stock market). Trendline is one of the most used tools technical analysis Is. If the prices move up, the trendline is up and if the prices move down, the trendline is down. how Draw a trendline It is very effective in technical analysis and forecasting the price trend.

One of the important applications of trend lines is their use in identifying support and resistance levels. In another part of the upcoming article, we will briefly explain these levels. But in general, by using the trendline, you can identify the points where there is a possibility of resistance and support levels.

In short, if we want to say very simply what a trendline is; It can be said that a trendline is a line that connects the high points of an asset’s price to its low points. simply! Another term that you will hear in the meantime is the broken trend line, which we will get to know about in the following.

Broken trend line in trendline

When the price of an asset crosses the trendline, we say that the trend line is broken. This can provide profitable trading opportunities. Because after that, the trend changed and by considering the right trading strategy, you can get a good profit. In fact, breaking the trend line is a good opportunity to take advantage of price changes in the market.

Look at support and resistance levels

Previously, we looked at the levels of support and resistance and its relationship with the trendline; In this section, we examine this issue in more detail.

Unlike trendlines, support and resistance lines are drawn horizontally and are considered “levels”. At the support level, the number of buyers is high and at the resistance level, the number of sellers is high.

At the support level, we are facing a bearish trend in which the price is prevented from falling too much. On the other hand, in the upward trend, the price resistance level increases to some extent.

Therefore, if you are looking for successful transactions, be sure to know these levels well. Now that we are familiar with the trendline and support and resistance levels, it is time to learn how to draw a trendline.

Read more: Key Bitcoin Support and Resistance Levels

How to draw a trendline in a price chart

Drawing a trendline in a price chart is not difficult and after a few times of practice, you can easily master it. If the trend lines are drawn correctly, you will see the market moving in the same direction.

It should be noted that the name of every line cannot be called a trend line; Rather, to draw it, you need to identify the prevailing trend in the market. Other things that you should consider when drawing a trendline are the volume of transactions, the shape of candles, the type of price reaction, etc.

How to draw a suitable trend line in rising and falling markets? We will examine this issue further.

Drawing an upward trendline

To draw an uptrend line, identify 2 or 3 price floors to connect them to form a sequence of higher floors. In this way, each price floor must be at a higher level than the previous price floor.

After identifying these points, find the Trend Line option in your charting tool and click on the price floors you want from left to right. Do not forget that the trend line should be drawn to the right. If this action is not done, activate the Extend option from the settings section.

Drawing a downward trendline

To draw a downtrend line, look for markets where the price has declined. The drawing of this line is similar to the upward trend line; with the difference that the direction of the line is downwards.

To draw a downtrend line, look for price ceilings that are moving downward. As we said before, click on the first price ceiling using the corresponding tool and then move to the right and target the lower price ceilings. When drawing ascending and descending trendlines, keep in mind that the line does not cross the body of the candle.

What are the ways to trade using trendline?

There are various trading strategies for trendline trading that can lead to profitable trades. For example, consider a bullish market and draw a correct trend line in it. When the price returns to the trend line, that’s when you should think about buying. Usually, in such a situation, indicators and candles also show you a sign of the upward trend of the market.

Another strategy is to use a downtrend line. Experience has shown that in the digital currency market, bullish trends outlast bearish market corrections. Therefore, when the market is in a correction mode, it is the best time to buy assets at a low price.

The above are just examples of trading strategies you can consider. After gaining experience and constant practice, you can make more confident investments using trend lines.

Important points for drawing a trendline

There are factors that it is better to pay attention to to draw the trend line. In this section, we mention 2 of the most important ones:

• Turnover
• time periods

Turnover

Usually, the volume of transactions has a great impact on the market trend. As the prices reach the trend line, expect an upward jump followed by an increase in trading volume. On the other hand, an increase in prices and at the same time a decrease in the volume of transactions can be a sign of a decrease in prices.

time periods

The digital currency market is a kind of fractal market; This means that the patterns created in long-term periods are also created in short-term periods. However, since there is less data in short time frames, it is better not to make them the basis of your analysis. Therefore, it is better to give more value to long-term time frames.

Conclusion

So far, we have learned about one of the most widely used technical analysis tools, the trendline. As you have seen, using this tool is very simple and only by gaining experience and practice, you can use it easily.

We suggest that you increase your knowledge about trend lines and trading strategies related to them. In this way, you will have a more informed and successful investment and you can make transactions with more profit and less risk.