How to Use Trend Lines on the Stock Charts?

This article will tell you about the basics of trend lines trading. I will tell you what the trend line is and how to use it in Forex trading. We’ll consider main rules for such strategy and analyze it using a real trading example.

So What Is a Trend Line?

A trend line is basically an indicator showing current price movement. On a stock chart it looks as a diagonal line, not horizontal or vertical.

As traders, we use this line to understand current price action, weather it is moving up or down. If the price moves sideways, no trend line is used. In the chart I showed in this article you will see that we can place many trend lines on a price chart we want to trade.

For me personally, trend lines are very important in my traders’ business. I trade using candlestick charts in all time frames and always mark current trend lines.

Main Rules to Remember

There are few main rules you might want to remember when using trend lines on price stock charts.

First of all, the price should have some volatility in both directions as mentioned above. But when the price direction becomes clear, do not be shy with your trend lines. I use trend lines on all my charts and it’s always helpful.

Next thing to remember: trend lines are only trading tools, though, very important ones. If we feel that price direction is going to change, we can use a trend line in support or resistance zone, where we might look to enter or exit a trade.

I always mark bias, or a trend line, when trading. This way I state a direction I expect a trade to go. Remember, though, that the price direction can change any moment, no matter what expectations are.

Trend Line in Real Action

All traders need some basic knowledge of candlesticks before starting to trade. However, if you always look at charts and keep practicing, you will notice the moves and be able to see trend lines on all types of stock charts.

I do understand it is easy for me to talk about a trend line after the move has happened, but I just want to help you see at least a rough idea of how to use this amazing tool.

Let us start with the first trend line on the left. The price is clearly moving to the upside. Notice that it took some time before the price managed to break below my trend line. At this exact point you would choose whether to take action on a trade or ignore it and wait for another opportunity.

Let’s take a look at a left trend line in support area, where I have placed a blue arrow pointing to the upside. The arrow shows further price movement where it breaks the trend line with some nice green candles. You could use such moments to take some actions like a buy trade.

Second trend line on the top shows a red candle. I tried to set a few sell trades, but it did not work out. Price went sideways and never triggered any action.

Now let’s look at the trend line in the lower bottom of the chart. The price is riding down very well and starts to go sideways. After the price breaks the trend line, it starts moving to the upside. This situation is helpful if your intention is to buy this pair.

Last but not Least

Trend lines are very useful for traders, so let me mention another very important point about it. When placing a trend line on a chart, I like it to have a minimum of three touches on other candle sticks. There are times you will only have two and that is fine. However, if the price hits the trend line, don’t take it off the stock chart.