WEBVTT

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How to draw a trend line? First of all, we need to clarify that drawing an uptrend line is different

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from drawing a downtrend line. When you draw an uptrend line, you connect higher lows,

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so the line will be below the price. When you draw a downtrend line, you connect lower highs, so the

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line will be above the price.

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Here we have a Euro-Australian dollar.

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It is clear that we are in an uptrend, but let's define it by drawing a trend line, that can also be useful

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for future trading decisions. To draw an uptrend line,

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I need to connect higher lows, so starting from here,

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I draw my first line trying to connect these two lows.

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When you draw a trend line, you also need to check if it has any significance for future prices.

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In this case, you can see that here the price crossed a bit

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the trend line. Not that much,

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but here it happens again and it is even worse than before.

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Even if we go further, here for example, the price simply doesn't respect the trend line

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and so this trend line doesn't have any particular meaning,

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we can also delete it.

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Let's try for example to connect these two lows.

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Is this trend line more significant?

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Let's see if the price respects this trend line. Here it breaks the trend line.

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And here again... and here

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even worse and probably in this area the trend line worked a bit as a resistance and, at the end, it worked

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for a small period as a normal trend line, but, overall, I would say that this trend line also doesn't have

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any particular meaning.

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It simply never worked and never was a good trend line.

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Let's try to connect these two lows here, for example. As you can immediately see, this kind of trend line

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is much better. Starting from here,

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we have a second touch here and then many times the price tested the area around the trend line and

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got rejected. Once again, in this area.

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So let's check what happened next.

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You can see that here the price went a bit under the trend line, even if not that much.

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Remember that the trend line is an area, just like support and resistance.

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So you shouldn't expect that the price hits the line and immediately bounces back.

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It's not an exact price,

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it is an area.

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After this period, the trend line starts to work again perfectly.

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Here it goes up, it comes back and then it goes up again.

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Then it comes back on the trend line and bounces back.

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At the end, the price breaks the trend line and starts a new down movement.

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So my advice is: try to connect higher lows, in case of an uptrend, or lower highs if it is a downtrend,

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and check if your trend line has any significance at all.

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This means that after the first two points, there must be at least a third point that clearly respects

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the trend line, pushing the price back.