A trend line is nothing more than a straight line joining two points, but at the same time, should not be underestimated. If the line drawn between two points is extended, there is more to be gained and the more point that you can join up the better. Now, you may not get an exact fit but that is nothing to worry about. The more choppy the stock that you are looking at, the more difficult it will be to construct a trend line, and the less choppy, the better. The stocks that lend themselves to such line are usually called trending stocks anyway.
Most of the time trend lines are drawn in pairs, one along the low prices of the stock, the other, along its high prices. This creates a channel or range for us and also another term, called range trading. The upper line is call the resistance, and the lower one, the support. Each line signifies a possible trade entry point for you to open a position. What you are seeing if the price breaks either line is the mood of the market. The trader psychology is causing a shift of sentiment, a surge of buying or selling.
Trend lines are one of the fundamental aspects of technical trading, which is chart based. There is no need to follow company performance. You just need the result of the performance in terms of price. And even better, you don’t need to go drawing lines everywhere nowadays because it is all done for you. Technical traders, or chartists have a world open to them in the form of software, most of it well within people’s budget. With the software are all the construction tools you need.
It can take a little experimentation to draw, or click, a trend line into the best spot on your nice fresh chart. There is often more than one place that looks good for a best fit, but practice will be your best friend.
One of the better areas to use trend line is with the Forex, and I have applied some extremely good trend lines to the US Dollar versus the UK Pound chart. I used a relatively quick feed on my chart, and had three mini screens showing 15 second, one minute, and five minute, live price feeds. The trend lines acted as the main indicator for that method of trading, known as scalping.
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Ian Jackson is an authority on Day Trading information, learning the hard way – and now he reveals how you can learn the business too, without all the growing pains.
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