Trend line — a visual technical analysis tool, which allows the simplest way to demonstrate in what direction the price of a particular financial instrument.
Dow theory, which is based on all technical analysis, suggests that no matter how the price behaved, she will always be in a particular trend. If the price behaves relatively smoothly and remains in the same range, not showing neither growth nor fall, this trend is called lateral, or flat-trend. In the framework of a flat trend, there are minor variations to the prices at which the experienced trader can predict the time of the exit side of a trend and a move to rise or fall in the value of the asset.
For the growing, or bullish, trend is characterized by the emergence of a number of ascending highs, with each new peak should be higher than the previous one. Accordingly, the bearish downtrend demonstrates the point of failure (price minimum), each of which will be below the previous one.
A trend line can be constructed by two points of maximum or minimum, while mandatory third confirming. The more points form the trend line, the more confident and more stable the trend. Construction points should not be too close to each other in a time frame, otherwise the trend is not quite correct. Please note that the uptrend line is under construction under the schedule, and descending on him.
Trend line allows with sufficient degree of confidence to state that on the price will move in a given direction. It should take into account the angle of the trend line — its permanence means stability trends. Changing the angle of the trend line is called the acceleration or deceleration of price movement. The greater the angle, the trend rapidly.
Passing through the lows line is called a support line. As soon as the price reaches it, she finds there is support from the market and, starting again seeks the top. The line connecting price highs — the resistance line. The level above which the value of the asset to rise.
If the price breaks the support line or resistance — is a clear signal to the violation of the trend and a change in tactics by trading.
Trend line is a classic technical analysis tool, however “bulls” and “bears” have learned to use them to their advantage, placing the traps that come across their opponents and the majority of the market “crowd”. These moments are characterized by the breakthrough of the support line and resistance, and then a sharp trend change in the opposite direction.