The trend is your friend… If you were that one kid in class who would say things like “When will I ever use a line of best fit? This is stupid” well… I hate to break it to you but you might have wished you tried harder.
Although all is not lost, it is relatively easy to do, which is why they teach you it when you are young and dumb.
If they had of just said “this will make you lots of magic internet money one day”, you and I may have listened a little harder… probably not, come to think about it.
So what are trendlines used for in trading?
As the name suggests, they are to plot trends in a chart to allow the trader to interpret the direction of the imminent price movement. If you can use a trendline to predict the future pierce movement it can be a profitable way to trade.
Trendlines are a major source of support and resistance. Usually, a downward price movement will bounce off of a support trend and move upwards. At this time you would look to buy at the support or place a bid at the support level.
To go through the rest of these examples we will use AAX –
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Let’s have a look at how trendlines can help you become a better trader using the graph layouts on AAX.
If you are new to AAX, to head to their spot trading, click ‘Spot’.
Now you are here you can select the chart you want to trade.
In this example, I have chosen COMP/USDT.
The upwards movement shown here is a near parallel channel. When drawing a trendline ensure you hit as many opens and closes as possible.
You can also draw trendlines through wicks; effectively drawing them at highs and lows. No matter how you draw them, be consistent. Consistency is always key.
The support line here intersects 3 opens. The resistance line intersects 3 closes and at the start a high. You want to aim for at least three data points, more is better. I wouldn’t go any lower than 3, that’s just joining two dots and not a trend.
This is a descending triangle taken on 24th March. We are seeing lower highs which we can draw a trendline attaching all the highs which give the slope on the triangle.
The support we will come on to more in a minute but effectively this is a flat 90-degree line with that huge anomaly wick.
You could also draw this with an ascending support line.
Or how I like to draw the support level is more of a support area.
You can use the rectangle shape on AAX to draw this support area. The top like is the higher support whilst the bottom is the lower support. If the trend breaks the lower support we may have a confirmation of a downtrend.
Let us see what has happened overnight with this SNXUSDT chart and see how it plays out with what we have drawn.
On the daily chart, the trend has broken below the first support line and closed. I would now monitor this chart to see if 1) it bounces off the lower support line, 2) if it closes back above the first support line, it could regain that trend of bouncing between support and resistance.
If it breaks above the resistance slope on the triangle and closes above it, I would then expect the price to move upwards. This is when you could place a buy order and set a stop loss just below the resistance line.
To show you an example of this we can have a look at the ETH/BTC chart today. This is a chart that trades ETH against BTC and visa versa.
A very nice and easy set up (I wish I noticed earlier than now), descending wedge/triangle, however you want to call it, the price moves above and then close above the line and this is enough for people to rush in and buy.
What’s also worth noticing is that notice the movement of the chart, flowing up to resistance and back down in a wave-like pattern which is then broken right before the movement to the resistance and the close above the line.
So give it a go and make sure you sign up to AAX. This helps our platform in more ways than you can imagine. We really appreciate any support whether that be a ‘like’, share or even telling a friend about us. Thanks for the help.
You can sign up to AAX here, it couldn’t be easier to get started being Pablo Picasso on every chart you see.
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That being said, this is all for educational purposes and should not be interpreted as financial or investment advice.
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