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  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
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        • Flag, Pennant
        • Symmetrical Triangle
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        • MarketCarpets
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        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
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        • Candlestick Bullish Reversal Patterns
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        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
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          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
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      • Introduction to Technical Indicators and Oscillators
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        • Aroon Oscillator
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        • %B Indicator
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        • DecisionPoint Price Momentum Oscillator (PMO)
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        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
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        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
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        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
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        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
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        • Linear Regression Forecast
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        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
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        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
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      • Net New 52-Week Highs
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      • Pring's Bottom Fisher
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      • The DecisionPoint Chart Gallery
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        • Introduction to Elliott Wave Theory
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        • MACD Zero-Line Crosses With Swing Points
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          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
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          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
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On this page
  • What Are Trend Lines, How Are They Used, and Why Are They Important?
  • What Is an Uptrend Line?
  • What Is a Downtrend Line?
  • Scale Settings for Trend Lines
  • How Do You Validate a Trend Line?
  • What Are the Spacing Rules for Trend Lines?
  • What Are Trend Angles?
  • What Are Internal Trend Lines?
  • The Bottom Line
  • Trend Line FAQs
  • Additional Resources

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  1. Table of Contents
  2. Chart Analysis

Trend Lines

Learn how to use trend lines to identify trends effectively, make trading decisions, and enhance your market analysis skills.

PreviousSupport & ResistanceNextGaps and Gap Analysis

Last updated 11 months ago

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What Are Trend Lines, How Are They Used, and Why Are They Important?

Trend lines are straight lines that connect two or more price points on a chart to identify and confirm trends.

In technical analysis, trend lines are a fundamental tool that traders and analysts use to identify and anticipate the general pattern of price movement in a market. Essentially, they represent a visual depiction of support and resistance levels in any time frame.

The importance of trend lines in technical analysis lies in their ability to provide a clear visual representation of market trends and potential reversal points, which can help traders make informed trading decisions. They provide a simple yet effective means to identify and anticipate market behavior.

Many of the principles applicable to support and resistance levels can be applied to trend lines as well. It's important that you understand all of the concepts presented in our before continuing on.

What Is an Uptrend Line?

An uptrend line has a positive and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Note that at least three points must be connected before the line is considered a .

Uptrend lines act as support and indicate that net demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net demand has weakened, and a change in trend could be imminent.

What Is a Downtrend Line?

Downtrend lines act as resistance and indicate that net supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish and shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that the net-supply is decreasing and that a trend change could be imminent.

Scale Settings for Trend Lines

High and low points appear to line up better for trend lines when prices are displayed using a semi-log scale. This is especially true when long-term trend lines are being drawn or when there is a large change in price. Most charting programs allow users to set the scale as arithmetic or semi-log. An arithmetic scale displays incremental values (5,10,15,20,25,30) evenly as they move up the y-axis. A $10 movement in price will look the same from $10 to $20 or $100 to $110. A semi-log scale displays incremental values in percentage terms as they move up the y-axis. A move from $10 to $20 is a 100% gain and would appear to be much larger than a move from $100 to $110, which is only a 10% gain.

In the weekly chart of AMZN (see below), there were two false breaks above the downtrend line as the stock declined between 2000 and 2001. These false breakouts could have led to premature buying as the stock declined after each one. The stock lost 60% of its value three times over two years. The semi-log scale reflects the percentage loss evenly, and the downtrend line was never broken.

In the case of EMC, there was a large price change over a long period. While there were no false breaks below the uptrend line on the arithmetic scale, the ascent rate appears smoother on the semi-log scale. EMC doubled three times in less than two years. On the semi-log scale, the trend line fits all the way up. On the arithmetic scale, three trend lines were required to keep pace with the advance.

How Do You Validate a Trend Line?

It takes two or more points to draw a trend line. The more points used to draw the trend line, the more validity is attached to the support or resistance level represented by the trend line. It can sometimes be difficult to find more than 2 points from which to construct a trend line. Even though trend lines are an important aspect of technical analysis, drawing trend lines on every price chart is not always possible. Sometimes, the lows or highs don't match up, and it is best not to force the issue.

A general trendline rule: It takes two points to draw a trend line, and the third one confirms the validity.

The chart of Microsoft (MSFT) below shows an uptrend line that has been touched four times. After the third touch in Nov-99, the trend line was considered a valid support line.

When the stock price bounced off the trend line level a fourth time, the soundness of the support level was enhanced even more. As long as the stock remains above the trend line (support), the trend will remain in control of the bulls. A break below would signal that net supply was increasing and that a change in trend could be imminent.

What Are the Spacing Rules for Trend Lines?

The lows used to form an uptrend line and the highs used to form a downtrend line should not be too far apart or close together. The most suitable distance apart will depend on the timeframe, the degree of price movement, and personal preferences.

If the lows (highs) are too close together, the validity of the reaction low (high) may be in question. If the lows are too far apart, the relationship between the two points could be suspect. An ideal trend line comprises relatively evenly spaced lows (or highs). The trend line in the above MSFT example represents well-spaced low points.

In the WalMart (WMT) example below, the second high point appears too close to the first high point for a valid trend line; however, it would be feasible to draw a trend line beginning at point 2 and extending down to the February reaction high.

What Are Trend Angles?

As the steepness of a trend line increases, the validity of the support or resistance level decreases. A steep trend line results from a sharp advance (or decline) over a brief period. The angle of a trend line created from such sharp moves is unlikely to offer a meaningful support or resistance level. Even if the trend line is formed with three seemingly valid points, attempting to play a trend line break or to use the support and resistance level established will often prove difficult.

In the chart below, there were four trend line touches over five months. The spacing between the points is reasonable, but the steepness of the trend line could be more sustainable, and the price is more likely than not to drop below the trend line. However, trying to time this drop or make a play after the trend line is broken is a difficult task.

The amount of data displayed and the chart size can affect the angle of a trend line. When assessing the validity and sustainability of a trend line, keep in mind that short and wide charts are less likely to have steep trend lines than long and narrow charts.

What Are Internal Trend Lines?

Sometimes, you may see the possibility of drawing a trend line, but the exact points do not match up cleanly. The highs or lows might be out of whack, the angle too steep, or the points too close together. If one or two points were ignored, you could form a fitted trend line. But with market volatility, prices can overreact and produce spikes that distort the highs and lows. One method for dealing with over-reactions is to draw internal trend lines, which ignore these price spikes to a reasonable degree.

The long-term trend line for the S&P 500 ($SPX) extends up from the end of 1994 and passes through low points in July 1996, September 1998, and October 1998. These lows were formed with selling culminations and represented extreme price movements that protruded beneath the trend line. By drawing the trend line through the lows, the line appears at a reasonable angle, and the other lows match up well.

Sometimes, a price cluster with a high or low spike stands out. In a price cluster, prices are grouped within a tight range over time. You can ignore the price spikes by using the price cluster to draw the trend line.

The Coca-Cola (KO) chart below shows an internal trend line formed by ignoring price spikes and using price clusters instead.

KO formed a peak in October and November 1998, with the November peak just higher than the October peak (red arrow). If the November peak had been used to draw a trend line, the slope would have been more negative, and there would have appeared to be a breakout in December 1998 (gray line). However, this would have only been a two-point trend line because the May–June highs are too close together (black arrows). Once the December 1999 peak formed (green arrow), it would have been possible to draw an internal trend line based on the price clusters around the Oct/Nov 1998 and the Dec 1999 peaks (blue line). This trend line is based on three solid touches and accurately forecasts resistance in Jan 2000 (blue arrow).

The Bottom Line

Trend lines can offer great insight but, if used improperly, can also produce false signals. To validate trend line breaks, other tools, such as horizontal support and resistance levels or peak-and-trough analysis, should be employed.

Trend lines are popular analytical tools but are only one tool for establishing, analyzing, and confirming a trend. In the chart below, price touched the uptrend line four times and seemed to be a valid support level. Even though the trend line was broken in January 2000, the previous reaction low held and didn't confirm the trend line break. In addition, the stock recorded a new higher high before the trend line break.

Trend line breaks should not be the final arbiter, but should serve merely as a warning that a change in trend may be imminent. By using trend line breaks for warnings, investors and traders can pay closer attention to other confirming signals for a potential change in trend.

Trend Line FAQs

Why are trend lines significant in technical analysis?

Trend lines visually illustrate the direction of price trends and can also help identify potential support and resistance levels. They can also produce false signals if used improperly, so they should be used in combination with other technical analysis tools to validate trend line breaks.

What should traders do when a trend line breaks?

A break in a trend line serves as a warning that a change in trend may be imminent. However, this should not be the final deciding factor. Traders should also look at other confirming signals, like horizontal support and resistance levels or peak-and-trough analysis, for a potential change in trend.

What is the significance of the spacing of points in a trend line?

The lows used to form an uptrend line and the highs used to form a downtrend line shouldn't be too far apart or too close together. If they're too close, the validity of the reaction low or high may be questionable. If they are too far apart, their relationship could be suspect. Ideally, an uptrend or downtrend line is formed with relatively evenly-spaced lows or highs.

How does the angle of a trend line affect its validity?

The steeper the trend line, the lesser its validity as a support or resistance level. Steep trend lines often result from sharp advances or declines over a brief period. These lines may not offer meaningful support or resistance levels even if they are formed with three seemingly valid points.

What are internal trend lines, and how are they useful?

Internal trend lines can be drawn when the exact points for a conventional trend line don't match up cleanly. They ignore price spikes and overreactions to a reasonable degree, focusing more on the overall trend in market prices.

Additional Resources

A downtrend line has a negative slope formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Note that at least three points must be connected before the line is considered a .

For a detailed explanation of trend changes, which are different from trend line breaks, please see our article on the .

Dow Theory
Greg Morris: "On Trendlines"
valid trend line
Support and Resistance article
valid trend line
slope
Example of an uptrend line in a stock chart.
Example of a downtrend in a stock chart.
Examples displaying downtrend lines in semi-log vs. arithmetic scale charts.
Examples displaying uptrend lines in semi-log and arithmetic scale charts.
Example of a valid uptrend line.
Example of a trendline where the second high point is too close to the first one.
Example of a steep trendline.
Example of an internal trend line.
Example of an internal trend line using price clusters.
Example of a trendline break that didn't reverse the trend.
Example of an uptrend line using StockCharts.com
Example of a downtrend in a stock from StockCharts.com
Example of a downward trend line in semi-log and arithmetic scale charts using StockCharts.com
Examples of the difference in uptrends using semi-log vs. arithmetic scale charts using StockCharts.com
A chart displaying a valid uptrend line when three points touching the trendline using StockCharts.com
Chart using StockCharts.com showing two points in a trendline that are close to each other
Chart from StockCharts.com showing a steep uptrend line
Chart from StockCharts.com showing an internal trend line that ignores price spikes
Chart from StockCharts.com showing an internal trend line drawn using price clusters
Chart from StockCharts.com that shows a break in an upward trendline that didn't reverse the trend