What Is Trendline, How To Use It in Investing, With Examples

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What Is Trendline, How To Use It in Investing,
With Examples
What is a trendline? Trend lines are particular
lines that traders use to connect a series of
prices on a chart. The investor can then use the
resulting line to get a good idea of how a
stocks price might move in the future.
Connecting important points of support and
resistance, or important points of higher highs
and lower lows, is how trendlines are made.
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The trader can then use the resulting line to
clearly understand where an investment might be
headed. What does the trendline show? Before
knowing how to use trendlines, You must know why
we use trendlines. Technical analysts look for
trends in price action rather than historical
company performance or other factors. Technical
analysts can determine the direction of market
prices with the help of a trendline. According
to technical analysts, recognizing the trend is
the first stage in executing a successful
trade. A trader needs at least two points on a
price chart to draw a trendline. Some analysts
like to use different time frames, like one
minute or five minutes. Others look at plans
that are made every day or every week. Some
analysts dont care about time at all. Instead,
they look at trends based on tick intervals
instead of time intervals. People like
trendlines because they can help them spot trends
regardless of the era, time frame, or interval
employed. If the current market price of company
XYZ Pvt. Ltd. is Rs 3500 and goes up to Rs 4000
in 2 days and Rs 4500 in 3 days, the analyst will
need to draw three points on a chart Rs 3500,
Rs 4000, and Rs 4500. If an analyst draws a line
between all 3 prices, it shows they are going
up. Since the slope of the trendline is upward,
the analyst knows to purchase in the direction
of the trend. But if the price of company XYZ
Pvt. Ltd. goes from Rs 3500 to Rs 2500, the
trendline will have a negative slope, which means
the analyst should sell in the direction of the
trend. Example of a trendline Now that we know
what is a trendline, lets discuss how to use
trendlines.
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To draw a more accurate trendline, you should
look for three consistent points of support and
resistance, or higher highs and lower lows.
Starting from the first point, connect the
second point to the third point using a
trendline. Now see the angle and pattern of the
line you drew.
We can describe the market as being in an uptrend
or bullish if the drawn trendline points all
point upward. If, on the other hand, the drawn
trendline slopes downward, the market is in a
bearish or downtrend.
When a bullish candle pattern or other
encouraging sign arises, a trader can buy it once
it has been validated by the other trading setup
tools. In the same way, if a negative candle
pattern or other bearish sign appears, a trader
can start selling once the other tools in his or
her trading setup confirm it. Have a look at the
picture for understanding. What types of
trendlines are there? There are many different
kinds of trendlines. Linear, logarithmic,
polynomial, power, exponential, and moving
average are some of the most popular types.
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• Limitations of the Trendline
• Its important to understand that trend lines
  have some limits, even though they can be
  helpful tool for analysing stock market data.
  Here are a few points to consider if you think
  youve found the holy grail
• Techniques for drawing trend lines can be
  different from person to person. To draw a
  trendline, you have to choose which price points
  to join, which can be a personal choice.
  Investors may draw alternative trendlines based
  on how they view the data, resulting in
  differing stock trend conclusions.
• Trendlines can help identify past trends, but
  they may not always be accurate predictors of
  the future. Conditions in the market can change
  quickly and without warning, which makes it hard
  to predict trends correctly.
• External factors may not be taken into account by
  trendlines. As we know, trendlines only consider
  price patterns and, like the price of one
  particular stock, they dont care about outside
  factors that can affect the stocks performance.
  For example, A companys earnings, economic
  conditions, and international events may affect
  its stock price, but the trendline may not.
• Trendlines are the best tool if you want to know
  if a trend is going up or down over time but
  cant expect more or cant depend on our trading
  on trend lines only.
• Trendlines are all about the game of drawing a
  trendline if you miss it, it can lead to a
  loss. Investors shouldnt base investment
  decisions exclusively on trendlines, but rather
  on many data sources and price patterns.
• Now that weve learnt about one of the most
  essential and fundamental aspects of technical
  stock analysis, its time to study more about
  technical analysis and some trading strategies.