we’re doing well we’re going to pick up where we left off last time when we said that there were three types of trend and we gave a definition for an uptrend and a downtrend so we’re quickly going to run over that again just to refresh your memory and then move straight on to explaining what we mean by those definitions by going through Israel on an actual chart we have three types of trend.
MUST READ: Forex Trading Strategies for Beginners
We have an uptrend where the overall direction of the market is upward and the actual movement might be something a bit more like this and then we have a downtrend where the overall direction of market is downwards and the actual movement of the market might be a little bit more like this and then we have a sideways trend which is also called a ranging market and that’s where the price tends to be bounded above and below by consistent levels of support and resistance.
So that the overall direction is sideways and then the definitions that we finished off with last time for an uptrend and a downtrend an uptrend is when the market makes successive higher highs which we can also describe as higher peaks and higher lows which we could also describe as higher troughs and then a downtrend is when the market makes successive lower highs or lower Peaks and lower lows or lower troughs in that typical oscillating movement that a market tends to make so let’s now look at some charts to illustrate this and here is that same chart cropped to look solely at the two areas we are interested in.
I’ve annotated the downtrend and uptrend parts there so let’s look first of all at the down trend I’m going to mark on the troughs we have one here and here and another one here and here and let’s down here and here as well and we can see that each successive trough is lower than the last so let’s now mark on the peaks and there we go and we have successively lower Peaks we look at peak here it is lower than the one before it there and so on so we’ve got lower lows and lower highs so let’s now do the same with the uptrend first of all the troughs we have on here and here here here and here.
There as well and we see that each successive trough is higher than the last and now the peaks and we have successively higher peak so each peak is higher than the one that comes before it so those defining characteristics are in place higher highs and lower lows coming in succession indicating an uptrend now we come to an important skill to have in your toolkit as a budding technical analyst which is how to draw trend lines draw a trend line can help you identify and confirm trends but it can also help you spot when a trend is beginning to break down.
So let’s look at some general guidelines for drawing trend lines in order to draw a trend line for an uptrend you’re aiming to connect major troughs in the price so we said for an uptrend you’re looking at higher highs and higher lows we’re going to be concentrating on the lows when it comes to drawing the trend line looking at those troughs we’re trying to identify supports coming in at increasingly higher levels and then in order to draw a trend line for a downtrend we’re aiming to connect major peaks in the price so a downtrend lower highs lower lows.
We’re going to be looking at those highs connecting the pigs and we’re looking for resistance to be coming in at lower levels successively here we have an example of a trend line drawn for an uptrend we can see that we have a number of troughs and we’ve drawn a line through those points to give us a trend line they don’t actually need this many you can draw a trend line just looking at two troughs put the line through it and that 1/3 will be used to confirm and here we have an example of a trend line drawn for a downtrend.
You can see how the line goes through the piece of the market and we’ve got lots and lots here once again you only really need to to construct the line say and then a third to confirm what is going on but the more you do have the better because then the stronger the indication of the trend trading to ones whose web app comes with a dedicated function for drawing trend lines so let’s now take a look at how to use this here we are in trading to one-twos web app looking at that same daily candlestick chart of oil that we looked at earlier and to get to the trend line.
Talton go up to here where we’ve got a horizontal line currently selected us drop down this menu here by clicking on it and I’ll select the trend line tool so for the downtrend on the Left we’d be looking to join the peaks now this isn’t a precise science and facts you could say is more of an art than a science but if I was to start with these first few Peaks up here and then draw my line through here from this I might be able to infer some things about what’s going on as the trend develops I might infer that the trend was picking up a pace as it went deeper lower.
Beneath my trend line at this point here and then maybe started to run out of steam as it came back towards a trend line and just peaked above it he and then you might decide once it broke well above the trend line here that the trend was over and obviously with hindsight it was and then for the uptrend let’s draw another line this time we’re looking to the trough so we would pick some of these troughs draw a line through it see might draw something like this.
Looking at that she might decide that at this point where it’s broken well below the trend line he might decide that the trend was over and if we scroll on of course you’d see that you’d be right in thinking that and with these lines if we decide that we want to change them we can just click on them and then move them around by grabbing either of these points at the ends there just to go over some further guidelines then for drawing trend line some of which we’ve already touched upon ultimately the market is your guide to the market has to really dictate what the line does not the other way round so if your line doesn’t fit where the market is done it’s unlikely to be valid anymore when we’re drawing a trend line.
When we’re constructing it we only need to join two peaks for a downtrend or two troughs for an uptrend you and you need to to construct the line then you will need a third to confirm that it is a valid trend line but then the more times that a line is tested and holds then the stronger your conviction can be about that trend line well I hope you enjoyed this video on trends and how to draw trend lines if you did please just take a moment to hit the thumbs up button and give us a like why not let us know what you think about trend lines