Significance of Trendlines



A trendline is one of the most basic but established utility in charting. A break in trend caused by the penetration of the trendline results in either an actual trend reversal or a slowing in the pace of the trend. Although it is hard to know which alternatives will develop, there are three guidelines that can assist us in our evaluation.

-The length 
The trend length is a crucial factor to take into consideration. A short length trendline occurring over 1-3 weeks are only of minor importance. If the trend extends over a longer period of 1 month to 36 months, its trend violation will signify a crucial juncture point. So by analogy, long trends equals big signal, short trend equal small signal.

-The number of times the trendline has been tested
A trendline is formed by a dynamic area of support and resistance. The more times the trend is tested, the more authority it has. Also note that a close encounter approach to the trend is almost as important as an actual test. If a line gains significance from the fact that it has been tested, the extended line will become equally as important.

-The angle of ascent or descent
All trends will eventually be violated. A steep trend is of lesser significances because they are likely to be ruptured more quickly. Steep trend violation is usually assumed to be a short corrective movement and is usually represented to be a continuation rather than a reversal break. A gradual trend violation holds more authority and is a more plausible candidate for a trend reversal.

Hope that these few pointers can make your trendlines evaluation more useful and efficient.

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