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Help With Drawing Trendlines

  • #1
  • First Post: Nov 9, 2018 7:27am Nov 9, 2018 7:27am
Hello,

I often get confused on how to draw trendlines day to day. I do not know rather to start from the high/low wick of the candle and connect OR do I start with the close/open body of the candle.

On the attached is a Black and Blue trendline. Which trendline is correct or should I both trendlines be respected?

Thank you very much for your time and help.
Attached Image (click to enlarge)
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  • #2
  • Nov 9, 2018 9:08am Nov 9, 2018 9:08am
Quoting goodoboy
Hello, I often get confused on how to draw trendlines day to day. I do not know rather to start from the high/low wick of the candle and connect OR do I start with the close/open body of the candle. On the attached is a Black and Blue trendline. Which trendline is correct or should I both trendlines be respected? Thank you very much for your time and help. {image}
There is no universally agreed method but one that is used by many is as follows: (For an uptrend) Draw an upward sloping line below the price action so that it touches the lowest prices at two places and NO prices cut below the trend line. And vice-versa for a downtrend.

On this basis neither of your trendlines qualify. On your chart you'd start where you have started the blue trendline on the left edge, going upwards and across to touch the double low formed by the two green candles that are the 3rd & 4th last posted on the chart.

The logic is that a trendline should contain all the price action otherwise you've drawn a trendline that has already been breached. But, as mentioned, there is no universally 'right' method so you can validly use anything that works for you.
  • #3
  • Nov 9, 2018 9:35am Nov 9, 2018 9:35am
It is the blue one, without question. Fully logical why, totally obvious. Because let's say this is a daily chart, if you draw it like the black one, when you go on the hourly, the price must have broken through back and forth it at least once, if not more times, inside the spike where it starts. With the blue one you'll find it is always at the edge of price action no matter the timeframe. In other words it deals with the fractal nature of the market, while the black one doesn't.

Although I understand it can be confusing, there are a lot of people who draw random lines all over the chart. They just weren't taught/don't know how to do it. And it is not the blue because I said so, but because that is the logical one.

The blue is broken through later though, about 15 candles back from the last candle, showing the deceleration of the upswing.
Price and volume reveals everything. The market moves on supply and demand.
  • #4
  • Nov 9, 2018 9:53am Nov 9, 2018 9:53am
Quoting goodoboy
... Which trendline is correct or should I both trendlines be respected? ...
Neither is "correct" and both are "correct". The use of trendlines is a very subjective one. So the answer to your question lies more in this better question...How do you intend to use the trendline? As you can clearly see, both trend lines have been "broken" by the price action, meaning price has moved below and stayed below...but what does that really mean?

I prefer to think of trendlines more like a sniper would think of his target...if I can see the (and draw) the trendline then so can everyone else. Thus the point of interest around the trend line becomes NOT will it hold but what will other trades do when price gets to that point. I would say looking at the chart you have posted that there is a battle between buyers and sellers causing the order flow to balance and price to range. Thus you ask did the trendline cause this or did traders' reaction to this line cause it?

So when you look at this line from the stand point of what are traders doing and which side of the order flow (buyer or sellers) are trying to establish dominance then the line really become irrelevant and more of a curiosity to help explain why at a certain price point this ranging occurred.
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  • #5
  • Nov 9, 2018 9:57am Nov 9, 2018 9:57am
Quoting Darastonius
It is the blue one, without question. Fully logical why, totally obvious. Because let's say this is a daily chart, if you draw it like the black one, when you go on the hourly, the price must have broken through back and forth it at least once, if not more times, inside the spike where it starts. With the blue one you'll find it is always at the edge of price action no matter the timeframe. In other words it deals with the fractal nature of the market, while the black one doesn't. Although I understand it can be confusing, there are a lot of people...
Thank you so much Darastonius, I appreciate your logical explanation. I am just learning to things that make logically and obvious sense.

Yes, it is confusing at times, as I trade the 5 minute chart daily and I need more practice theory learning.

For instance, look what happen now with that blue line.

Questions/Comments:

1. Should the blue line be extended outward as shown below? Obviously, it should cause price is reacting to it.

2. Had I not extend the trendline outward, I would not have an understand why price is rejecting here.

Thank you,
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  • #6
  • Nov 9, 2018 5:12pm Nov 9, 2018 5:12pm
A trendline is the same as a support/resistance line, just with a different angle, so it has the same rule. Once price goes through them back and forth without reaction, it becomes invalid. In that case nothing is there, because the line doesn't trigger a reaction from the supply and demand relation on the market. If this happens you just have to redraw the lines at where the market actually turns. The reason to draw trendlines where the market actually turns (so the blue line way, not the black line way) is because those are the points where demand overtook supply (or supply overtook demand in case of the lines drawn above the price).

So the way you extended the line on the first pic could be okay, because it broke once and then reacted at the retest. Although personally I like to restrict lines to the immediate price action. A trendline on the hourly won't have any significance 2 weeks later just because you can extend it so far. But it could have a lot of significance in the same or next day's price action.

Now what is important to remember that trading has an artistic element, and these lines are not mechanical. First there should be some discretion applied when it is broken or not. If it spikes over a couple of pips, then comes back, that doesn't mean a back and forth breakthrough, and it doesn't make the line invalid. The best way I could put it is that when it seems like the market doesn't care about the line just goes through back and forth without any reaction, then nothing is there.

The other thing is, that on the pic after the first breakthrough downwards there is a little retest right after that. And also there is a spike before the rally which seems like just fell short from the trendline a couple of pips. These things are up to your judgement to decide that if they are a valid retest of the trendline or not.

Personally I use trendlines (or to be exact trend channels) extensively, but only to signal the acceleration/deceleration of the price swings. I'd say use the lines as discretionary tools rather than fixed borders on the market.
Price and volume reveals everything. The market moves on supply and demand.
  • #7
  • Edited 12:45am Nov 10, 2018 12:29am | Edited 12:45am
Quoting Darastonius
A trendline is the same as a support/resistance line, just with a different angle, so it has the same rule. Once price goes through them back and forth without reaction, it becomes invalid. In that case nothing is there, because the line doesn't trigger a reaction from the supply and demand relation on the market. If this happens you just have to redraw the lines at where the market actually turns. The reason to draw trendlines where the market actually turns (so the blue line way, not the black line way) is because those are the points where demand...
Really great answer. I think if a TL is respected, its correct. I wouldn't delete the black one until its clear the market rejects it. I am no expert, but my advice would be to be aware that sometimes when a TL is broken the market can move to rangebound rather than reverse trend. That has stung me many times. Eg theres a break down, and you think wow great it's trending down , when in fact it can still go up but with a lower high, and form a new range. On confirmation of a TL break out it's good to confirm a new LH, or HL, if you can. Sometimes thw market doesnt wait i know

Also i would've drawn the black line a bit differently. I wouldve started it from the tip of the tail of the first green candle (which would naturally incorporate the tail of the red candle to its left) and then had it line up with the tips of the red candles across. The red bearish candle on the right kills any respect for the black line.
  • #8
  • Nov 10, 2018 2:04am Nov 10, 2018 2:04am
Dear,
Check this thread >> https://www.forexfactory.com/showthread.php?t=837317
From Post No 4th About Trend line
Ata-Turkoglu


Thankyou
  • #9
  • Nov 10, 2018 6:10am Nov 10, 2018 6:10am
I've given up trendlines after finding them far too subjective i.e. they are very easy to draw in hindsight but far too open to tweaking when trading live.

The only lines on my charts now are horizontal. It's reduced my stress massively.
  • #10
  • Nov 10, 2018 10:06am Nov 10, 2018 10:06am
Quoting TeenyTrader
I've given up trendlines after finding them far too subjective i.e. they are very easy to draw in hindsight but far too open to tweaking when trading live. The only lines on my charts now are horizontal. It's reduced my stress massively.
Thank you TeenyTrader,

I am having the same challenege with trendlines when I am intraday trading. A setup can look good, until I draw a trendline and it confusing me a bit.

But I am enjoying the answers here and I really appreciate everyone response.

I will keep the trendlines, because price respects the trendlines. I just need to understand them more
  • #11
  • Nov 10, 2018 10:08am Nov 10, 2018 10:08am
Quoting DonPato
{quote} Neither is "correct" and both are "correct". The use of trendlines is a very subjective one. So the answer to your question lies more in this better question...How do you intend to use the trendline? As you can clearly see, both trend lines have been "broken" by the price action, meaning price has moved below and stayed below...but what does that really mean? I prefer to think of trendlines more like a sniper would think of his target...if I can see the (and draw) the trendline then so can everyone else. Thus the point of interest around...
DonPato,

I really appreciate your response regarding trendlines. Thank you
  • #12
  • Last Post: Nov 10, 2018 7:58pm Nov 10, 2018 7:58pm
Start from monthly...weekly..to H4..that's what i do....i just trade pure from Line eg. trendline and horizontal line...just don't make it complicated..take the obvious peak and through...and be patient wait the price comes to your lines...and wait..don't chase the trade,no "assumption".."no i think the price will bla.bla..bla"...
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