Trendline Analysis

Trendline analysis involves drawing lines on a chart to connect consecutive highs or lows to visualize the direction of the market. An upward trendline connects higher lows, while a downward trendline connects lower highs.

These lines help traders identify the prevailing trend and anticipate potential breakouts or breakdowns. When a price consistently respects a trendline, it serves as a dynamic support or resistance level.

A breach of a trendline is often interpreted as a signal that the current trend is weakening or reversing. This tool is foundational in technical analysis for setting exit points and trailing stops.

While simple, it requires subjective judgment to determine the most significant points to connect. It provides a clear framework for trend-following strategies.