Trend Lines & Channels

Key points

• Uptrend Line: Connect two or more higher lows with a straight line. Price should stay above this line for the uptrend to remain valid
• Downtrend Line: Connect two or more lower highs. Price staying below this line confirms the downtrend. Break above = potential reversal
• The Rule of Three: A trend line needs at least 2 points to draw, but it becomes 'confirmed' only when price touches it a 3rd time and bounces
• Ascending Channel: Parallel uptrend lines containing price. Buy at lower line (support), sell at upper line (resistance)
• Descending Channel: Parallel downtrend lines. Price moves between them. A breakout above the upper line signals a trend reversal
• Sideways Channel (Range): Horizontal parallel lines. Price oscillates between support and resistance. Buy at bottom, sell at top
• Break of Trend Line: When price decisively breaks a trend line (with volume), it signals a potential trend change. 'Decisively' means closing beyond the line, not just intraday wick
• False Breakout: Price briefly crosses a trend line but then reverses back. Very common in choppy markets. Wait for closing basis confirmation
• Slope Matters: A very steep trend line (>60°) is unsustainable. When it breaks, price often corrects to a more moderate trend line angle (~30-45°)