The zone where the price emerges suggests a change in the current trend.<\/p>\n\n
The trend line<\/strong> acts as a watershed – the price crossing this watershed signals a trend reversal.<\/p>\n\n In an uptrend, the trend line<\/strong> is drawn as a support line<\/strong>.<\/p>\n\n In a downtrend, it is marked as a resistance line<\/strong>.<\/p>\n\n Indeed, until the price crosses the trend line<\/strong> (support line<\/strong>) in an uptrend, it cannot be concluded that this trend has ended and a downtrend<\/strong> or side trend<\/strong> has begun.<\/p>\n\n Similarly, in a downtrend, only the price crossing the trend line<\/strong> (resistance line<\/strong>) indicates a potential trend change.<\/p>\n\n Channel lines<\/strong> are lines parallel to the trend line<\/strong> and constructed so that within the existing trend, all prices are enclosed between the trend line<\/strong> and the channel line<\/strong>.<\/p>\n\n The channel formed by drawing parallel lines (trend line<\/strong> and channel line<\/strong>) represents the optimal trading range.<\/p>\n\n The direction of the channel<\/strong> – downward, upward, or sideways – determines the market trend.<\/p>\n\n If prices fluctuate between two parallel straight lines (channel lines<\/strong>), we can discuss the presence of an ascending, descending, or horizontal channel.<\/p>\n\n When the price is confined within a certain price channel, the trader’s task of making profits is noticeably simplified.<\/p>\n\n Opening positions in the direction of the trend when the price bounces off the trend line<\/strong> is an ideal market entry.<\/p>\n\n In contrast, when the price approaches the channel line<\/strong>, closing positions allows you to secure maximum profit, which is the most optimal point for profit-taking.<\/p>\n\n When the price exits the price channel, it usually moves in the direction of exit by 60-80% of the channel’s width.<\/p>\n Constructing trend lines<\/strong>, support\/resistance lines<\/strong>, channel lines<\/strong>, and levels<\/strong> are subjective.<\/p>\n\n Each person interprets these phenomena in their own way.<\/p>\n\n With such a personal approach, the number of lines and levels can become excessive, while fewer lines are actually necessary.<\/p>\n\n In his book “Technical Analysis – The New Science<\/em>“, Thomas DeMark<\/strong> presents several criteria that reduce the number of lines plotted and bring their number closer to the actual number of trend lines<\/strong>.<\/p>\n\n Here are some excerpts from his book.<\/p>\n\n Like any aspect of charting, drawing a trend line<\/strong> is a form of art.<\/p>\n\n Sometimes, a line that initially seems accurate needs to be discarded.<\/p>\n\n However, here are some rules that will help you identify the correct line.<\/p>\n\n First of all, there should be clear signs of a trend.<\/p>\n\n This means that to draw an uptrend line<\/strong>, you must have at least two lower lows, with the second low being higher than the first.<\/p>\n\n Naturally, two points are always required to draw a line.<\/p>\n\n Once two consecutive declining points, where the next low is higher than the previous one, are marked on the chart, they are connected by a straight line drawn from left to right.<\/p>\n\n Once the nature of the trend is confirmed, the trend line<\/strong> can be effectively used to address several aspects.<\/p>\n\n One of the fundamental principles of a trend is that a trend in progress tends to continue its movement.<\/p>\n\n Therefore, once a trend gains a certain pace and the trend line<\/strong> is at a specific angle, that angle will generally remain consistent as the trend further develops.<\/p>\n\n In this case, the trend line<\/strong> will help you identify the extreme points of corrective phases and, more importantly, indicate the possibility of a trend reversal.<\/p>\n\n Let’s say we are dealing with an uptrend<\/strong>.<\/p>\n\n In this case, the inevitable corrective or intermediate pullbacks will either come close to or touch the rising trend line<\/strong>.<\/p>\n\n Since a trader expects to buy on dips in an uptrend, the trend line<\/strong> will serve as a support level<\/strong> below the market, which can be used as a buy zone.<\/p>\n\n Conversely, if the trend is a downtrend<\/strong>, the trend line<\/strong> can be used as a resistance level<\/strong> for selling.<\/p>\n\n Several parameters characterize the trend line<\/strong>.<\/p>\n\n The most important characteristic of a trend line<\/strong> is its angle of inclination: it indicates the strength of the trend.<\/p>\n\n It reflects the market sentiment of the dominant trend.<\/p>\n\n Another important aspect is the method of drawing a trend line<\/strong>.<\/p>\n\n Many analysts prefer to construct trend lines<\/strong> through extreme points.<\/p>\n\n However, Elder<\/strong> believes that such lines are best drawn through areas of dense trading activity, as the goal is to identify the prevailing market sentiment, not the outliers.<\/p>\n\n Some traders prefer to draw trend lines<\/strong> through closing price points.<\/p>\n\n However, this approach is not entirely adequate; although the closing price is a significant value, it represents only a specific aspect of price dynamics within the entire period.<\/p>\n\n Therefore, some analysts argue that the trend line<\/strong> should be constructed by considering both price lows and highs.<\/p>\n\n Consequently, each trader may choose their own method of constructing a trend line<\/strong>.<\/p>\n\n Let’s consider one of the methods for choosing two critical points needed to build a trend line<\/strong>.<\/p>\n\n Market price movements are usually viewed retrospectively – from the past to the future, so the dates on the chart are listed from left to right.<\/p>\n\n Accordingly, supply and demand lines<\/strong> (trend lines<\/strong>) are built and placed on the chart from left to right.<\/p>\n\n However, this intuition is flawed.<\/p>\n\n The movement of prices in the present moment is more important than the market’s movement in the past.<\/p>\n\n In other words, standard trend lines<\/strong> should be drawn from right to left so that the most recent market data is on the right side of the chart.<\/p>\n\n Important supply price pivot points<\/strong> are determined when a price high is registered, above which prices have not risen on the day immediately before or after it.<\/p>\n\n Similarly, important demand price pivot points<\/strong> are determined when a price low is registered, below which prices did not fall immediately before or after it.<\/p>\n\n Such key points are called TD points<\/strong>.<\/p>\n\n Trend lines<\/strong> are drawn through TD points<\/strong>.<\/p>\n\n Any imbalance between supply and demand is reflected on the chart by the appearance of new TD points<\/strong>.<\/p>\n\n As they appear, TD lines<\/strong> are constantly being adjusted.<\/p>\n\n Hence, it is important to determine the latest TD points<\/strong> and draw TD lines<\/strong> through them.<\/p>\n\n There are two methods for improving the selection of TD points<\/strong>.<\/p>\n\n An important factor in selecting TD points<\/strong> is the closing prices two days before the formation of the pivot price high<\/strong> and the pivot price low<\/strong>.<\/p>\n\n Highs and lows recorded without TD point selection improvement methods<\/strong> are called “graphical” highs and lows.<\/p>\n\n The highs and lows recorded using the TD point selection improvement techniques<\/strong> are referred to as “true” highs and lows.<\/p>\n\n Assessing the validity of a given point also requires comparing two price values: the last pivot price high<\/strong> (or low) and the closing price on the day immediately following it.<\/p>\n\n The validity of the pivot price low<\/strong> is questionable if the closing price on the day after its registration is lower than the calculated value of the TD Line’s rate of advance.<\/p>\n\n Similarly, the validity of the pivot price high<\/strong> is doubtful if the closing price on the day after its registration is higher than the calculated value of the TD Line’s rate of decline.<\/p>\n\n These corrections significantly reduce the number of TD points<\/strong> and, accordingly, the number of TD lines<\/strong>.<\/p>\n\n At the same time, they increase the significance of TD points<\/strong> and the reliability of TD lines<\/strong> for determining support and resistance levels<\/strong> and calculating price projections<\/strong>.<\/p>\n\n The TD lines<\/strong> described earlier have a Level 1 magnitude<\/strong>.<\/p>\n\n It takes three days to determine each TD point<\/strong> used to build them.<\/p>\n\n A TD line<\/strong> drawn from two such points is negligible since it may take as little as five days to form two TD points<\/strong>.<\/p>\n\n However, a trader often needs a longer-term perspective of price developments.<\/p>\n\n To draw a Level 2 magnitude TD line<\/strong>, each TD point<\/strong> needs at least 5 days to form: the pivot price high<\/strong> must be surrounded on each side by two smaller highs, and the pivot price low<\/strong> by two fewer lows.<\/p>\n\n Accordingly, to build a TD line<\/strong> with the length of the third level (Level 3 magnitude<\/strong>), it takes at least 7 days to register each TD point<\/strong>, and so on.<\/p>\n\n In this case, all TD points<\/strong> of a higher extension level are simultaneously TD points<\/strong> of a lower extension level.<\/p>\n\n However, not all are “active” points of the first level because only the last two are valid first-level TD points<\/strong>.<\/p>\n\n The TD line<\/strong> of the second and higher extension levels obeys the same laws as the TD lines<\/strong> of the first level.<\/p>\n\n All levels of TD lines<\/strong> use the same price projectors.<\/p>\n\n It is preferable to work with first-level TD lines<\/strong>.<\/p>\n\n Two reasons determine this choice:<\/p>\n\n Breakouts<\/strong> of trend lines<\/strong> indicate that the dominant group is losing its commanding position.<\/p>\n\n However, the key here is not to jump to conclusions prematurely.<\/p>\n\n Now, we approach the question of the criteria for a true breakout<\/strong> of the trend line<\/strong>.<\/p>\n\n This question is not straightforward, and some degree of subjectivity is unavoidable in answering it.<\/p>\n\n A breakout<\/strong> of a trend line<\/strong> is only valid when prices close on the other side of the trend line<\/strong>.<\/p>\n\n Generally, a trend line breakout<\/strong> by the close of the day signifies much more than just an intra-day breakout.<\/p>\n\n However, sometimes, even a breakout of the day’s closing price is insufficient to indicate a genuine trend line breakout<\/strong>.<\/p>\n\n Most analysts employ various price and time filters to eliminate false signals.<\/p>\n\n An example of a price filter is the criterion for breaking the trend line by a certain number of points.<\/p>\n\n The most common time filter is the so-called two-slot rule<\/strong>.<\/p>\n\n In other words, a breakout<\/strong> of the trend line is considered true if, for two consecutive intervals (for example, days), the closing prices remain outside of it.<\/p>\n\n It should be noted that the time and price filters<\/strong> are also used to assess important support and resistance levels<\/strong>, not just the main trend lines<\/strong>.<\/p>\n\n Very often, a break<\/strong> of a trend line<\/strong> is the first sign of a change in the trend.<\/p>\n\n One of the methods to determine the minimum price targets when a trend line<\/strong> is broken is the so-called method of finding TD price projections<\/strong>, which is described below.<\/p>\n\n There are three methods for calculating price projections<\/strong> after a true trend line breakout<\/strong>.<\/p>\n\n They are called TD price projectors<\/strong>.<\/p>\n\n Price Projector 1<\/strong> is the easiest to calculate but has the least accuracy.<\/p>\n\n It is defined as follows: When a price breakout<\/strong> of a descending TD line<\/strong> occurs, prices usually continue to move higher by at least the distance between the price low below the TD line<\/strong> and the price point on the TD line<\/strong> immediately above it, added to the price at the breakout point.<\/p>\n\n When a price breakout<\/strong> of an ascending TD line<\/strong> occurs, prices continue to move down to a level calculated as follows: the distance from the high price above the TD line<\/strong> to the price point on the TD line<\/strong> immediately below it is subtracted from the price at the breakout point.<\/p>\n\n Often, price targets<\/strong> can be determined “by eye”, but most traders require more accuracy.<\/p>\n\n The rate of change of the TD line<\/strong> can be calculated as follows: the difference between the TD points<\/strong> is divided by the number of days between them (excluding non-trading days).<\/p>\n\n You can accurately calculate the breakout price by multiplying the additional number of trading days from the last TD point<\/strong> to the breakout point by the rate of change.<\/p>\n\n By adding to (or subtracting from) the breakout price the difference between the point on the TD line<\/strong> and the price low (high) directly below (above) it, depending on whether it is a buy or a sell, a price target<\/strong> can be determined.<\/p>\n\n TD Price Projector 2<\/strong> is somewhat more complicated.<\/p>\n\n For example, if a descending TD line<\/strong> breaks upward, instead of selecting the minimum price below it, the intraday low below the TD line<\/strong> on the day with the lowest closing price is chosen.<\/p>\n\n This value is then added to the breakout price.<\/p>\n\n The smallest intraday low is often recorded on the day with the lowest closing price.<\/p>\n\n In this case, Price Projector 1<\/strong> is identical to Price Projector 2<\/strong>.<\/p>\n\n To calculate the price projector<\/strong> in the event of a downward breakout of an ascending TD line<\/strong>, the key day is considered to be the day with the highest closing price or, more precisely, the intraday high on that day.<\/p>\n\n It may seem that TD Price Projector 2<\/strong> is more accurate and conservative than Price Projector 1<\/strong>, but this is not always the case.<\/p>\n\n For example, suppose the rate of advance or decline is particularly fast, and the closing low in a downtrend or the closing high in an uptrend (key day for Projector 2<\/strong>) occurs earlier than the intraday low or high.<\/p>\n\n In that case, the price target<\/strong> obtained using Price Projector 2<\/strong> is larger.<\/p>\n\n![\"Example](\"https:\/\/expforex.com\/wp-content\/uploads\/2023\/12\/image-9.png\")
<\/figure>\n<\/div>\nBuilding Trendlines (Trend Lines)<\/strong><\/h2>\n\n
Building and Selecting TD Points<\/strong><\/h2>\n\n
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Longer TD Lines<\/strong><\/h2>\n\n
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Breakouts of Trend Lines<\/strong><\/h2>\n\n
Price Projections<\/strong><\/h2>\n\n