Trendlines As A Technical
Applying trendlines to charts is a classic form of analysis. Here are some of the
basics of using this tool.
by Joe Luisi
Trendlines, which are one of the most basic techniques in chart analysis, are lines drawn to portray market
direction and even project where the market is going. A trendline† connects either a series of highs or a series of
lows in a trend. It can represent either support†, as in an uptrend line, or resistance†, as in a downtrend line.
(Consolidations are marked by horizontal trendlines.) Trendlines can provide visually oriented traders with an idea of
how the market is doing, and they can also pinpoint changes in trend. Just as markets come in various types, so do
trendlines, and they can be used in various ways to examine different market situations. Let's take a look.
The uptrend line is a diagonal line connecting significant lows and indicates when the market is moving higher and
making a series of higher lows and higher highs. Figure 1 shows a series of three uptrend lines for the Swiss franc;
in this chart, you can see that the franc is moving higher. Using an uptrend line on a long-term basis, we can connect
the lows made in December 1994 with the franc's activities in February 1995 and in May 1995.
These three points of time - December 1994, February 1995 and May 1995 - represent significant lows. On a
longer-term basis, this market is strong; it will move higher as long as this line is not broken. When the market
rallies, you can draw another trendline to connect the lows of February and March, and as the market climbs, another
uptrend line can be drawn.