How to draw and use trendlines

A trendline is a straight line that connects a series of lows or highs. It turns a vague feeling about a trend into something you can see, measure and set an alert on.

Lesson 23 of 76 · 2 min read

How to draw one

In an uptrend, connect two or more rising lows with a line and extend it to the right. In a downtrend, connect two or more falling highs. Two points create a line; a third touch that holds confirms it.

Use the major swing points, not every small wiggle. Most traders draw through the lows of the candles or bars, and accept a small wick poking through rather than forcing a perfect fit.

Angle and scale

Very steep trendlines break quickly and say little. Lines with a moderate slope that have been touched several times are the most meaningful.

On charts covering a long period, trendlines can look different on a log and a linear scale (see log vs linear scale). A line that fits on log may cut through prices on linear. Pick one scale, normally log for weekly charts, and stick with it.

What a break means

When price closes clearly through an uptrend line, the trend has at least slowed down. It does not always mean the stock will fall; it may simply go sideways for a while. Pay attention to volume: a break on heavy volume carries more weight than a quiet drift through the line.

Breaks of a downtrend line are useful too. In a base, the line connecting the falling highs of the handle or of the right side can give an earlier entry, though it is less proven than the classic pivot. See pivot and buy zone.

How traders use them

To see at a glance whether a stock or index is still trending.
As a guide for where pullbacks might find support in an uptrend.
As a warning to tighten a stop or take some profit when a long uptrend line breaks.
Together with support and resistance levels and moving averages, never alone.

Trendlines on Ticker&Tape

Open any chart, pick the trendline tool and click on two points. The line extends to the right automatically. You can then set a trendline alert so the platform tells you when price crosses it, instead of having to watch the screen all day.

Common mistakes

Redrawing the line every time it breaks so it always fits.
Drawing lines that are too steep, which break almost immediately.
Treating every small break as a sell signal without checking volume and the bigger trend.

Key points

Draw uptrend lines along the lows and downtrend lines along the highs.
A clear break, especially on heavy volume, means the trend is changing or pausing.
Set a trendline alert so the chart watches the line for you.

Check what you learned

Answer at least 2 of 3 correctly to complete the lesson.

1. How do you draw an uptrend line?

2. A stock closes clearly below a long uptrend line on heavy volume. What does it mean?

3. Why should you avoid very steep trendlines?

Draw a trendline on SPY → Try it on Ticker&Tape