Technical Analysis·Support, Resistance & Trendlines
Drawing Trendlines
Connecting the Dots
A trendline is one of the simplest and most powerful tools in technical analysis. By connecting swing lows in an uptrend or swing highs in a downtrend, you create a visual representation of the trend's slope and a dynamic support or resistance line. Unlike horizontal support/resistance, trendlines move with price, providing an evolving reference point for trend-following traders.
The power of a trendline lies in its simplicity. While indicators involve complex calculations and can give delayed signals, a well-drawn trendline gives you an immediate visual answer to the most important question in trading: is the trend still intact? If price is above the uptrend line, the answer is yes. If it breaks below, the answer may be changing.
Definition
Uptrend Line
A line drawn connecting two or more higher swing lows in an uptrend. It acts as dynamic support — each time price pulls back to the line, it's potentially a buying opportunity. A break below the line signals potential trend reversal. The uptrend line represents the minimum rate of price appreciation that buyers are defending.
Definition
Downtrend Line
A line drawn connecting two or more lower swing highs in a downtrend. It acts as dynamic resistance. A break above the line signals potential trend reversal or exhaustion of selling pressure. The downtrend line represents the maximum rate of price recovery that sellers are willing to allow.
Definition
Swing High
A candlestick high that is higher than the candles immediately before and after it. Swing highs are the peaks in a price series and serve as anchor points for downtrend lines and resistance levels. The more prominent the swing high (higher timeframe, bigger price difference from surrounding candles), the more significant it is.
Definition
Swing Low
A candlestick low that is lower than the candles immediately before and after it. Swing lows are the troughs in a price series and serve as anchor points for uptrend lines and support levels.
Rules for Drawing Valid Trendlines
How to Draw a Trendline Correctly
- 1
Identify the trend
First determine whether price is making higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend). If you can't clearly identify the trend, you probably shouldn't be drawing a trendline.
- 2
Find two clear swing points
For an uptrend line, find two distinct swing lows. For a downtrend line, find two distinct swing highs. These are your anchor points. The swing points should be obvious and clear — not minor wiggles within a candle.
- 3
Draw the line
Connect the two swing points. The line should touch the wicks, not the bodies of the candles. Use the charting tool to extend the line forward. Some traders use candle bodies instead of wicks — either approach is valid as long as you are consistent.
- 4
Validate with a third touch
A trendline with only two points is speculative. A third touch validates it significantly. The more touches, the more significant the line. Each touch is a data point confirming that the market respects this angle of ascent or descent.
- 5
Monitor for a break
A break is defined as a candle closing beyond the trendline — not just a wick piercing it. Wait for a confirmed close before acting on a break. False breaks (wick-only violations) are common and are actually bullish/bearish signals in themselves.
Don't force the angle
A very steep trendline (45+ degrees) is usually unsustainable and will break quickly. A trendline that requires you to ignore obvious swing points to keep it intact is probably drawn incorrectly. The best trendlines have a gradual slope and are touched 3+ times. If you find yourself trying to make the line fit, step back and let the price action dictate the line.
Real-world example: GBP/USD uptrend line, Q4 2022 - Q1 2023
After the September 2022 low at 1.0350, GBP/USD began forming higher swing lows. Connecting the October low (1.0920) with the November low (1.1150) created an uptrend line. This line was subsequently tested and held in December (third touch at 1.1900 area) and January (fourth touch). Each touch offered a long entry with a stop below the trendline. The trend persisted until March 2023, delivering hundreds of pips of opportunity across multiple entries.
| Trendline Characteristic | Weak Trendline | Strong Trendline |
|---|---|---|
| Number of touches | 2 (minimum to draw) | 3 or more (validated) |
| Touch spacing | Touches very close together | Touches spread over significant time |
| Slope angle | Very steep (>60 degrees) | Moderate (20-45 degrees) |
| Timeframe | M5, M15 charts | H4, Daily, Weekly charts |
| Consistency | Some touches are far from the line | Touches are precise and clean |
| Duration | Hours or days | Weeks or months |
Channels — Trendlines in Pairs
When you draw a parallel line to a trendline on the opposite side of price, you create a channel. Price tends to oscillate between the two lines, giving you both a support line and a target (resistance line) simultaneously. Channels are powerful because they define the entire trading range of a trend, not just one boundary.
Definition
Ascending Channel
Two parallel upward-sloping lines containing price action in an uptrend. The lower line is the trendline (support). The upper line is the channel line (resistance). Price oscillates between the two. Buy at the lower line, take profit at the upper line. A break below the lower line signals a potential trend reversal.
Definition
Descending Channel
Two parallel downward-sloping lines containing price action in a downtrend. The upper line is the trendline (resistance). The lower line is the channel line (support). Sell at the upper line, cover at the lower line. A break above the upper line signals a potential trend reversal.
Trading within a channel
In a rising channel, buy when price touches the lower trendline (support). Take profit when price approaches the upper trendline (resistance). This gives you pre-defined entry and exit levels with clear risk management. The median line (halfway between the two channel lines) often acts as intra-channel support and resistance as well.
Channel breakout targets
When price breaks out of a channel, the measured move target equals the width of the channel projected from the breakout point. If a descending channel is 100 pips wide and price breaks above the upper line, the target is 100 pips above the breakout. This is one of the most reliable measured move calculations in technical analysis.
Entry
0.8560
Stop
0.8530
Target
0.8640
EUR/GBP bouncing off the lower boundary of an ascending channel on the H4 chart. The channel has been in place for three weeks with four clean touches of the lower line. Entry at the lower channel line (0.8560) with a bullish hammer confirmation candle. Stop below the channel line at 0.8530. Target at the upper channel line at 0.8640. R:R approximately 1:2.7.
Knowledge check
A trendline connecting two swing lows is touched for the third time while price is in a clear uptrend. What trading opportunity does this present?
Knowledge check
A descending channel on the daily chart has been containing price for 6 weeks. Price breaks above the upper channel line with a strong bullish close. What is the measured move target?