A trendline is probably the simplest and most universal tool in technical analysis. A straight line on a chart. Two or three points that define it. Nothing more. And yet, this simple line contains an astonishing amount of information — provided it's drawn correctly and interpreted intelligently. This article teaches you how not to massacre the exercise.
What a trendline is
A trendline is a straight line that connects at least two significant price points in the direction of a trend. Two main types:
- Bullish trendline (dynamic support): connects successive lows that are progressively higher. It serves as support in a bullish trend.
- Bearish trendline (dynamic resistance): connects successive highs that are progressively lower. It serves as resistance in a bearish trend.
In both cases, as long as price respects the line, the trend is considered intact. When it breaks it, that's a signal — a potential one — of change.
How to draw a trendline correctly
This is where 90% of beginners go wrong. A few simple rules make an enormous difference:
Rule 1: minimum two points, ideally three
A line defined by a single point makes no sense. Two points define a line, but it's still fragile — the line could be coincidence. A real trendline is validated when a third point touches it and bounces off. It's this third test that makes it "real".
A trendline with 5 or 10 touches is a major psychological level — watch it like milk on a hot stove.
Rule 2: draw on wicks or on bodies, but be consistent
Two schools of thought:
- Trendline on wicks: connect the absolute lows of each candle (or highs, for bearish trendlines).
- Trendline on bodies: ignore wicks and only connect open/close.
Both work. What doesn't work is mixing: drawing a line that touches some wicks and some bodies depending on what suits you. Pick a method and stick with it. Personally, I prefer wicks for major trendlines (they capture extremes) and bodies for intraday trendlines (they're more robust to noise).
Rule 3: prefer higher timeframes
A trendline drawn on the 4h or 1D is structurally more reliable than one drawn on the 15-minute. Lower timeframes have too much noise for precise lines — you can essentially draw any line that "works" on 3 random points.
Always start by drawing your major trendlines on the 1D or 4h, then you can use shorter trendlines on lower TFs for timing.
Rule 4: don't cheat
The temptation is strong to "force" a trendline to pass through points that aren't really aligned. If your trendline requires three attempts with different angles to "almost" work, then it doesn't exist. Move on.
Using a trendline
Once drawn, a trendline has several uses:
1. Dynamic support or resistance
As long as the trendline is intact, you can trade the bounces:
- In a bullish trend, go long when price returns to the trendline and shows a sign of rejection (hammer, engulfing, buying volume).
- Place your stop just below the trendline.
- Target the recent high or beyond.
This is one of the most classic and most robust setups in trend-following. Its advantage: you're buying into weakness of a bullish trend — so near the support — with a tight stop. The risk/reward ratio is excellent.
2. Trendline breakout
When price breaks an established trendline, that's a signal of a possible trend change. But beware of false breakouts:
- Condition 1: candle close on the other side. A wick that exceeds doesn't count. Wait for a candle to clearly close on the other side.
- Condition 2: volume. A breakout with heavy volume is far more reliable than a breakout on thin volume.
- Condition 3: successful retest. Often, after breaking a trendline, price comes back to test it from the other side — if this retest fails (the trendline, former support, is now resistance), the breakout is confirmed. This is often a better entry point than the breakout itself.
3. Target projection
A broken trendline often gives you an idea of the next target: the distance traveled before the break, projected after. It's not a magic rule, just a statistical heuristic that surprisingly often works.
Common pitfalls
Pitfall #1: forcing a line. Drawing a trendline that touches "almost" the points, or that requires weird angles to work. If the line doesn't come naturally, it doesn't exist.
Pitfall #2: one trendline per candle. If your chart has 8 simultaneous trendlines, you're adding noise instead of clarifying. Maximum 2-3 major trendlines at any given time.
Pitfall #3: confusing a short trendline with a major trendline. A trendline over 5 one-hour candles isn't equivalent to a trendline over 50 daily candles. Their weight is completely different. Label each line mentally by its importance.
Pitfall #4: trading the breakout mid-candle. Entering before the candle has closed on the other side is the best recipe for getting caught by false breakouts. Always wait for the close.
Trendlines and timeframes
The major structural trendlines are those on the 1W and 1D. They can hold for months or even years. Breaking them is a major event and deserves to be taken very seriously.
The intermediate trendlines on 4h work for swing trading (days to weeks).
The short trendlines on 1h and below are useful for intraday timing but far more fragile.
A good workflow: draw trendlines in order, from 1W down to 15m, and keep the major ones in mind even when trading shorter setups. The 1D trendline that just broke dominates everything else — a retest of that line on the 1h could be your best opportunity of the week.
Parallel trendlines: channels
When you can draw a second trendline parallel to the first, at the other end of the move, you have a channel. In a channel:
- Price oscillates between the two lines;
- The top of the channel is resistance, the bottom is support;
- You can trade the bounces off each side as long as the channel holds.
Channels are particularly clean when they appear. When they break (breakout on one side or the other), the move is often powerful in the direction of the break.
In DYOR
DYOR automatically detects trendlines on major timeframes and displays them on the detailed coin view. You can:
- Filter in the Trendscanner: coins with an intact trendline (good for trend-following) or in recent breakout (good for breakout trading).
- Follow a specific trendline: get an alert as soon as a candle closes on the other side.
- Verify visually: always open the detailed view to verify that the detected trendline is drawn correctly according to your criteria.
To go further
- Support and resistance — trendlines are their inclined cousin;
- Triangles and wedges — composite figures made of converging trendlines;
- Breakout strategy — how to exploit major trendline breaks.