Trend is your friendA trendline is two lines that represents two price points on a chart. These lines extend forward to identify sloped areas of support and resistance. If the trendline has a positive slope, it means net-demand is increasing. A negative slope shows that net-supply is increasing.
Why are trends important?If you trade in the same direction as the trendline, you are more likely to succeed. Making use of trendlines helps to avoid false buy or sell signals.
When an uptrend line is broken and the price of a coin is trading below the uptrend line, it means that the uptrend has ended. Traders use this as an indication to sell.
The opposite then also applies. When a downtrend is broken or the price breaks out of a downtrend line, it means that the downtrend has ended. This usually serves as a buy signal.
Remember, the price can retest a sloped trend line several times before it breaks out and a trend reversal occurs. For this reason, seasoned traders often wait for the daily candle to close to confirm a bullish or bearish trend.
How to identify trendlines on AltCoinTrader
- Log into your AltCoinTrader account
- On the left side of the chart, you will see the Trend Line icon. The icon that resembles a wand, is the second icon from the top.
- Here you can choose from a variety of trendlines. For the purpose of this blog, we will use the Trend Line on a 1-day chart.
- Drawing trendlines is as easy as connecting dots. In order to have a valid trendline you have to connect at least three highs or lows.
How to draw the best trendlinesThere are two simple things to keep in mind when drawing trendlines:
- During a downtrend, draw the line above the price. Should the price break to the upside of the trendline, the market is turning bullish.
- During an uptrend, draw the line below the price. Should the price break go below the trendline, the market is turning bearish.