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Task №2. Trend analysis: trend lines and trend channel.

Starting from this lecture, we will explore various methods of technical analysis.

The concept of trend plays the central role in trading as it forms the bedrock of technical market analysis. Numerous tools at the disposal of a technical analyst, i.e. support and resistance levels, price patterns, moving averages, trend lines etc., are all aimed to serve a single purpose. They allow traders to define and measure a market trend so that they can participate in it. Everyone related to the currency market has heard popular adages and sayings such as “always trade with the trend”, “never buck the trend”, “the trend is your friend” and the like. As you remember, we have already mentioned trends in the previous classes. So let us now study this concept in a more detailed way.

The trend is a tendency of a financial market to move in a particular direction. In real life, no market usually moves in straight lines. In fact, market dynamic involves a series of zigzags that resemble a succession of waves, rising and falling, and rising, and falling again. These rises and falls constitute a market trend..

The dynamic of prices moving downwards, upwards, or sideways indicates the character of a market trend. If each successive rally and dip closes above the previous peaks and bottoms, we observe an upward trend. Similarly, a sequence of descending highs and lows reflects a downward trend. In a sideways (horizontal) trend, rises and falls occur at roughly the same level.

Example of a rising trend with the ascending peaks and recessions

Example of a descending trend with the decreasing peaks and downturns.

Example of a horizontal tendency, when the top and bottom lines are at one level.

Such market is often called trendless.

On the left side of the graph we can see the growing trend representation, on the top – a flat-dipping line and decreasing movement on the right.

Trend has three directions

We have introduced these three notions (uptrend, downtrend, and sideways trend) for a reason. As it happens, many traders tend to believe that the market always seems to be moving in either one or another direction. However, in fact it has as many as three different directions: up, down, and sideways.

This is an important point to remember. Based on the most conservative estimates, the price is fluctuating in a horizontal movement for about one third of the total time period. This type of sideways movement is referred to as a trading (or market) range. Such upside and downside fluctuations indicate the period of price equilibrium, i.e. a relative balance of supply and demand.
For a chartist, such type of market activity poses a difficult challenge. Many technical tools and systems are essentially trend-oriented. In other words, they were originally designed to follow the market whether it is moving up or down. In a trendless phase, they are inefficient and unreliable. These so-called sluggish periods of sideways drifts often bring a disappointment to technical traders, leading to heavy capital losses. A trend-following system, by definition, needs a trend to produce good results. The problem here lies in traders themselves rather than the trading methods they apply. Let us get this point clear. A market player attempts to use a system by putting it in the conditions it is not designed for. Every trader on Forex has three choices: go long (buy), go short (sell), or do nothing at all, i.e. stand aside and wait. If the market is heading upwards, buying bets are recommended. In a downtrend, it is best to sell. When you see that the market is in a sideways pattern with no clear trend direction, the best decision would be to take a sit-and-wait approach.

Three types of trend

In addition to the fact that a trend may have three directions, as we have mentioned above, there are three separate categories of trends within the market: primary, secondary, and minor. The actual number of trends, all correlating and interacting with each other, is infinite. Some trends have a short life span stretching from minutes to several hours. There are also super-long-term trends that may span decades or even centuries. However, most technical analysts stick with the traditional classification and recognize three types of trends, even though there might be some ambiguity in different definitions.

For example, the Dow Theory describes the primary (or major) trend as a market movement lasting for more than a year. Due to the fact that forex traders use mainly shorter time frames, we will view the primary trend as the dominant price direction spanning at least six months. The secondary (or intermediate) trend, as defined by Dow, may last from three weeks up to three months. Minor (or near-term) trends cover no more than two or three weeks.

Each trend type represents part of a larger trend. Let us consider an example. An intermediate (secondary) trend is a correction in the major (primary) trend. In a long-term upward trend, the market may take a pause to ‘catch its breath’ and adjust to the new conditions for, say, two months. Then it will resume the prior upward movement. This intermediate correction, in its turn, represents a series of short-lived spikes and dips. The pattern repeats itself over and over again, so the overall market trend can be compared to a Russian doll: each trend consists of smaller trends and is itself part of a larger trend.

Example of three tendency types: long-term, mid-term and short-term. Points 1, 2, 3 and 4 signal the long-term ascending trend. The wave 2-3 represents a mid-term correction within the long term one. In its turn, each mid-term (secondary) wave divides into smaller short-term trends. For example, the mid-term wave 2-3 consists of smaller waves А-В-С.

The primary trend is moving upwards, with ascending highs and lows (points 1, 2, 3, 4). The correction phase (segment 2-3) is an intermediate shift within the major upward trend. Take notice of the 2-3 wave breaking down into three smaller waves (A, B, and C). As for point C, a technician would say that the primary trend continues to rise. At the same time, the intermediate and minor trends are bearish. At point 4, all the three trends are going up. It is vital to distinguish between the three trend types. If someone asks you what market trend is now in place, first you need to ask which type of trend is meant. It could be a good idea to refer to various trend classifications and explain the difference between them. Most commonly, analytical trend-following methods used in financial markets mainly focus on the intermediate trend. Its lifespan may be as long as several months. Minor (near-term) trends are generally used to determine the timing for opening and closing trade positions. For example, if the intermediate trend is bullish, short-term declines may be used to enter the market on a long position. Similarly, if the intermediate trend is heading lower, you can go short on a brief rally.

We have already mentioned more than once that price movement (or, as it is often called, price action) basically represents a cycle of rises and falls. It is their direction that determines the present market trend. Now we are going to look at these rises and falls in more detail. It is time to introduce the concepts of support and resistance. The lowest price levels seen earlier usually serve as support for a trading instrument. Support is a level or area on a price chart under the market, where buying interest is strong enough to resist selling pressure. As a result, the decline slows down, price movement is halted, and prices bounce off the bottom to start heading back up.

Support levels may be identified beforehand by analyzing previous lows.

At the graph is depicted the support and resistance levels growing amid the rising tendency. The points 2 and 4 – are the support levels, usually, they match together with the previous downturns. The points 1 and 3 – are the resistance levels, which used to come in line with the preceding peaks.

Resistance and support under the descending trend.

Resistance is the opposite of support as it represents a price level or area above the market. This is where selling pressure overcomes buying interest. When the price meets resistance, an earlier rally is capped, followed by a decline. In most cases, resistance levels coincide with prior peaks. Here you can see an upward trend chart, with support and resistance levels gradually shifting higher.

In an ascending movement, resistance levels reflect pauses in the development of an uptrend. At a certain stage, these levels will be exceeded, and the price will resume its upside march.

In the opposite case, support levels are hardly able to stop the decline completely in a downtrend, yet they can slow it down, at least temporarily.

To get a clearer idea of what a trend is, one needs to fully understand the concepts of support and resistance. An upward trend develops when each successive bottom (support) is higher than the preceding low. Accordingly, every next peak (resistance) should be located above the previous one. The moment when yet another corrective dip approaches the previous level may indicate a possible trend reversal (i.e. the uptrend is coming to an end). It may also signal a shift from upward price action to a sideways trend. If prices move lower beyond the support level, then the chances of a trend reversal increase.

Example of reversal in the tendency dynamics. In the point 5 the prices did not overcome the previous maximum 3, and moved lower the preceding decline 4. This signals a changeover to a downside trend. Such kind of model is called “double top”.

Example of a downward trend reversal. Usually, the first sign of that the prices have reached their bottom limit appears to be their ability to fix in the point 5 above the previous fall rate 3. The next price outbreak above the top 4 confirms the descending trend closing.

Classical example of a down-going trend reversal. Try to memorize this picture, because we will return to it in the next lecture while studying the price models.

Every time when a prior resistance peak is being tested, the uptrend is challenged and may possibly reverse its direction. If prices fail to rise above the previous peak in an uptrend, or are unable to fall below a previous support level in a downtrend, then a trend reversal is likely to take place in the short term. In our next class, when we explore price patterns, we will see how certain configurations occur on charts as a result of the price testing support and resistance repeatedly. Such retests point to a trend turning point or simply indicate a pause in the existing trend. These price patterns are based on support and resistance levels.

How support and resistance switch roles

The concept of support corresponds to the previous bottom, and resistance simply represents the prior high. Although the theory works in most cases, there are some exceptions. Now we will consider one of the most interesting and least known aspects of support and resistance: switching roles. Whenever a support or resistance level is broken at a considerable degree, the two reverse their roles. In other words, resistance becomes support, and, conversely, support turns into resistance. To understand how and why it happens, we will transfer our attention to some of the factors behind the formation of support and resistance levels, i.e. the psychological aspect of these two building blocks of technical analysis.

Psychology of support and resistance

To make this point clear, let us divide all market participants into three categories. The first group are traders who open long positions (buyers). The second group includes those who go short (sellers). Among the members of the third group are traders who refrain from opening any deals and stand aside for some reason. So, once again: buyers (bulls) go long (buy) and sellers (bears) go short (sell). The third category consists of traders who have either left the market already after closing all positions or have not decided yet which side to ally with.

Let us assume that prices have been fluctuating around a support level for a certain period of time. Then, the market started moving upwards. The ‘longs’ who have bought at prices around support are happy, yet cannot but regret they have not bought more. If only the market would return to the previous support level and shift lower, then they would purchase some more. The ‘shorts’ finally realized (or are starting to realize) that their strategy proved wrong. The degree of their pessimism is directly proportional to the distance the price has covered after retreating from support, but we will come back to it later. All they can wish for is the price to reverse and move lower, down to the level where they took a short position. If that happened, they would be able to leave the market at the entry point (the so-called breakeven point).

Traders who stay aside may also be divided into two groups: those who have not taken any positions at all, and those who have closed their longs for some reason near the support area. The latter are furious at themselves for the hurry and hoping for another chance to open long positions again near the level where they sold them.

You may be wondering: what about those undecided? In fact, they have already realized that prices are on the rise and decided to enter the market and place bullish bets. Therefore, as it turns out, all of the four groups are planning to buy the next dip. For all market participants, support under the market is the first priority. This means that as soon as prices drop to this level, traders will go on a buying spree, as all the four groups are ready to buy. As a result, strong bullish enthusiasm is set to push prices higher.

As trading activity that occurs around a support area grows stronger, this support becomes more significant because many market participants obtain a vested interest in price shifts. The degree of trading activity around support or resistance can be estimated in one of the following ways: 1) by analyzing the amount of time that the price has spent in that area; 2) by measuring the trading volume; 3) by considering how recently a support or resistance level was formed.

The longer the time period when prices have been fluctuating around a support or resistance area is, the more important this area becomes.

That is to say, let us assume that if an asset has been trading higher or lower in a certain sideways range for three weeks and then edged higher, this support area will be more powerful and trustworthy than if such price fluctuations took place for only three days.

Another measure used to determine the significance of support or resistance is its distance from the present moment. We are dealing with traders’ reaction to market movements and the positions that they already have taken (or failed to take). Therefore, it is quite clear that the more recent trading activity and price changes are, the more important they are.

Next, consider the opposite case. So, what if prices are heading lower rather than higher? In the previous example, they were on the rise, so market participants, all at once, rushed to open long positions at each corrective dip (thereby creating new support levels). If prices go down and break below a support level, the reaction will be just the opposite. Those who went long near the support area are starting to realize they have made a mistake. In addition, brokers begin to demand more margin from traders. Due to the use of leverage in trading, market participants cannot afford to lose more of their deposit. All they can do in this case is either top up their margin or liquidate the losing position.

Let us now clarify what exactly created the support level in the previous example. Apparently, it was located based on the buy orders placed under the market. At the moment, all the previous buy orders under the market have transformed into sell orders above the market, as support turned into resistance. Accordingly, the more significant the previous support area was (i.e. the more recent price dips were and the more trading volume there was), the more powerful it becomes as a resistance level. The factors that created the support level through the three categories of market participants (the longs, the shorts and those standing aside) will now set a certain ‘ceiling’ for future price rallies.

Support turns into resistance after it was broken by a substantial price shift, and vice versa. Therefore, the previous resistance level (peak 1) becomes the next support level as wave 3 exceeded it by a considerable degree. All sell-offs that took place by the top of wave 1 (thereby creating the resistance level) are eventually transformed into buy orders under the market.

During an uptrend, resistance turns into support after it is broken by a strong price movement. Note that the moment prices break above the resistance area at point 1, it becomes support at point 4.

Previous peaks serve as support levels for further corrections.

Following the downturn trend the support level, after its break through, transforms into resistance for the future price pickups. Bring to notice the way how the previous support (point 1) becomes a resistance (point 4).

As we have already mentioned, the distance prices have covered after they stepped away from resistance or support only increases the significance of that support or resistance level, especially when prices have exceeded support and resistance, and role reversal has taken place. You should remember that support and resistance levels switch roles after a significant price break lower or higher. You may be wondering: what exactly does a ‘significant’ break mean? Of course, there is a lot of subjectivity involved. As a measure to assess significance, most technical analysts tend to use 10-percent price breaks, particularly for major trend support and resistance levels. Shorter-term support and resistance imply a 3-5 percent break. In practical work, an analyst should decide for him or herself what shift can be considered as a significant break.

Remember that support and resistance may reverse their roles only after a price correction becomes strong enough to convince market participants that they have chosen a wrong strategy. As the market moves further away, their mistake becomes more apparent.

Pay attention how the support which was laying off the market all May becomes a resistance barrier in June. Support turns into resistance.

Trend lines

We have already discussed support and resistance. Let us now proceed to another important component of technical analysis, trend lines.

Trend is a very important concept for the financial market. It is most frequently used as a crucial tool in technical analysis. This notion refers to price movements on a chart in a particular direction. A correctly drawn trend line reflects the current market trend. However, traders often make mistakes when drawing trend lines and then make vain attempts to adjust the market to their calculations.

In traditional technical analysis, a trend line connects major support areas (lows) or resistance areas (highs). There are three types of trend lines based on this definition.

Example of rising trend line. Rising trend line is depicted under sequent rising fall points. Therein, a trial trend line may be traced through two fall points, one of which is higher (points 1 and 3), but for this line validity confirmation, the third line is required (point 5).

Downward trend line is traced above sequent descending peaks. An experiential trend line can be constructed with two points (1 and 3), but it will be considered as veridical after there will be three such points (point 5).

Depending on their lifespan, trends are divided into short-, intermediate-, and long-term trends. Most trading strategies applied on Forex are based on the trend as this approach enables getting the highest return with the lowest risk.

Building trend lines

Drawing a trend line is quite simple. You need to identify at least two major highs or lows and connect them with a straight line.

Still, one should keep in mind some important characteristics of trend lines. First, to draw a line, you need just two points. However, to check whether you have determined the price direction correctly, one more point should be added. Second, the trend angle plays a crucial rule. If it is too steep, the line would not be very trustworthy and is likely to be broken in the short term. Third, trend lines become more reliable once they have been tested by price, so they resemble sideways support and resistance levels in this regard. Fourth, you should never adjust trend lines to the market. If you do, they would lose their reliability almost completely.

How to use trend lines

Let us assume that we are dealing with a bullish trend. In this case, inevitable corrective or intermediate dips will often approach or touch the rising trend line. Because a trader is going to buy at dips in an uptrend, the trend line will serve as a support boundary under the market. It may be used as a buying zone. In a downtrend, the trend line acts as a resistance level for sellers.

If there is no break in the trend line dynamic, this line may be used to determine buying or selling zones. However, we can see a price break at point 9 which indicates that all orders opened in the direction of the prior trend should be liquidated. A break above or below a trend line often signals a trend reversal.

As soon as the rising trend line is set up, the next drops reaching the line can be useful as purchase ranges. The points 5 and 7 at this graph can serve for opening the new or additional long positions. The trend line outbreak in the point 9 proves the reversal in the trend behavior: probably, it moves downwards. That is why it is necessary to cancel all long positions in the point 9.

Points 5 and 7 can be used as a sale zone. The trend line outbreak (point 9) signals about possible trend reversal increase.

How to determine the significance of a trend line?

Now it is time to discuss some nuances associated with the practical application of trend lines. To begin with, what makes a trend line significant? Two answers are possible. First, the significance of a trend line depends on its validity (i.e. how long it has been intact). Second, another factor that determines significance is the number of times a line has been tested. For example, after eight price tests (each confirming validity), the trend line is considered to be much more trustworthy than a line that has only been touched, say, three times. Moreover, a trend line that has existed for nine months is a lot stronger than one with a lifespan of a mere nine weeks or days. The more significant the trend line is, the more reliable it is, and the more important price breaches above or below this line are.

How to treat small trend line breaks?

Sometimes prices break trend lines within one trading day but then return to the previous levels by the end of the session. In such cases, a chartist has to decide whether the trend line was actually breached. Should technicians build new trend lines based on new data after slight temporary or random breaks? Let’s say prices dived below the trend line but managed to recover afterwards and closed back above the line at the day’s end. Is it necessary to redraw trend lines?

Unfortunately, there really is no definite yes-or-no answer. Under certain conditions such price breaks may be ignored, especially if the consecutive market movement confirms the validity of the original trend line. In some cases, however, analysts have to build new tentative trend lines in addition to the original ones. These are typically drawn in dashes on a chart. Therefore, a chartist now has two trend lines to follow: original (solid) and new (dashed). Experience suggests that if a weak line break only took place within a single day, and prices corrected afterwards, once again exceeding the line by the session close, an analyst may well ignore this breach and focus on the original trend line instead.

In fact, it all depends on your experience and intuition. These two are your best allies on the trading front.

Sometimes, the trend line runout within one day makes a dilemma for the analyst: if to keep the initial trend line, which is still valid or to trace out a new one?A compromise would-be, amid which the first trend line remains, but at the graph the new line is designed as a dotted one. Time will show which is the most correct.

Trend lines reverse roles

As we have mentioned earlier, support and resistance levels turn into their opposite (i.e. switch roles) once they have been breached. To put it differently, an upward trend line (support line) tends to act as a resistance line after a significant break. A downward trend line (resistance line) may become a support line after it was breached. That is why we strongly recommend prolonging all trend lines on a price chart from left to right, as far as possible. The fact that they have already been broken does not change anything. It is inconceivable how often old trend lines become support or resistance lines in the future, after reversing roles.

How to adjust trend lines?

Sometimes trend lines need some adjustment in accordance with changes in trend development. The trend may either accelerate or slow down. Let’s take the previous example. If a steep trend line is broken, you have to draw a flatter line. Similarly, if a trend line turns out to be too flat, then it needs to be rebuilt at a steeper angle. Following the break of a steep trend line (line 1), we have to create a new, flatter line (line 2).The original trend line is very flat (line 1), then another one is drawn at a steeper angle (line 2). The uptrend started to accelerate, thus requiring a steeper trend line. A trend line that is too far away from actual price movements in the market holds no value for trend analysis.

Sample of how the up-going support line becomes a resistance. Usually, the support line turns into a barrier resistance for future spikes after a clear break down.

Speaking of an accelerating trend, we may have to draw a number of trend lines at increasingly steeper angles on the chart. Some analysts use curved trend lines in such cases. There are other options, too. If you need steeper trend lines, it could be a good idea to use a different technical tool, namely moving averages. They represent curvilinear trend lines.

One of the benefits of having access to various technical indicators is the opportunity to choose the most appropriate tool for each specific situation. The methods of technical analysis described in this training course may work well under certain conditions. In a different setup, however, their performance may lack in accuracy. When a technical analyst has an entire arsenal of tools at his or her disposal, they will easily pick out one that would be the most efficient in the given circumstances. An accelerating trend is a case when a moving average is more important than a whole series of trend lines at a steeper angle.

More often than not, the descending trend line becomes a support after a tick up.

Channel line

A forex channel consists of two parallel trend lines built according to particular rules. Channels are used in technical analysis along with other tools in order to predict future price movements and determine the best entry points for selling or buying an asset. A channel line, as well as a trend line, reflects potential support and resistance areas.

Drawing forex channels is a relatively simple practice. When we deal with a rising trend, first we need to build a major upward trend line, joining all price lows. Next, draw a dotted line parallel to the major line. The latter will move through the first significant peak (point 2). Both lines are directed bottom-up from left to right, forming a channel. If prices reach the channel line in an upcoming rising trend, then rebound from it and head lower again, the channel may actually exist (point 4). If prices hit the original trend line at their low (point 5), then the probability of channel existence increases. The same (in the opposite direction) may also be applied to a downtrend.

Example of a trend channel. After at the graph will be depicted the main mounting trend line (through the points 1 and 3), you may map the channel line or the reversal line (dashed line). It will stretch in parallel to the major growing trend line through the first peak point 2.

Trend channel in the course of descending movement. The channel line is projected down and passes through the first drop point (point 2) along with the down moving trend line marked out through the spike points 1 and 3. The price fluctuations often take place within a similar trend line.

Draw attention to the way how the up-directed motion fits well between the parallel trend lines. The main upward trend lines (bottom lines) are always more essential. Nevertheless, the channel lines in the headward course can help to determine the upper resistance bound.

There are several types of forex channels, with different techniques for drawing and analyzing technical data. The most popular and simple among those is an equidistant channel.

To draw it, you only need to locate three points on a chart. For support area, these would include two local highs and one low between them. The opposite is true for resistance: two local lows and one high.

Another type of forex channels that is frequently used by chartists is a Fibonacci channel.

It is constituted by an entire system of parallel trend lines. Two of them are based on the same principle as equidistant channels. The others are built according to Fibonacci proportions: 61.8%, 161.8%, 200%, 261.8% etc.

The next channel type is a linear regression channel. It consists of two parallel lines that are equidistant from the trend line in opposite directions.

The distance between the upper and lower channel boundaries is the maximum close price deviation from the regression line.

Finally, a standard deviation channel is drawn in the same way as a linear regression channel, the only difference being the distance between channel boundaries.

In this case, this distance is equal to standard price deviation from the regression line.

When working with forex channels, keep in mind that rebounds, breaches and retests may occur quite frequently. Take them into account in order to make a reliable price movement forecast. A rebound from a channel line occurs when the price touches a channel line at least four times and then reverses into the channel. In the case of a channel break, the price approaches a channel line from within, and the candle closes beyond the channel. A channel line retest means that the price returns to the earlier breached line, looking to retest it. Following successful retesting, the price pulls away from the channel line and prepares to break the channel.

The major upward trend line can be used for opening subsequent long positions. The channel line serves as a price target for profit-taking in short-term operations. If you consider yourself a risk taker, you can try and use the channel line to open a short position in the direction opposite to the major trend. However, be aware that countertrend trading strategies involve serious risks and often result in heavy losses.

Just as in the example with the major trend line above, the longer the channel length is and the more testing points confirm its existence, the more important and reliable this channel becomes.

The break of a major trend line always indicates the possibility of further changes in the trend direction. At the same time, breaches of an upward channel line, conversely, point to an acceleration of the existing trend. Many traders tend to regard the break of an upper line in a rising trend as a signal to open more long positions.

Break through of the rising trend line in the point 6.

A channel may also be used to assess the strength of a trend. If price fluctuations failed to touch the upper channel boundary (point 5), a trader should view this as a sign of an upcoming trend reversal. It is only a probability at this point. However, there is a solid chance that the second line (the major upward trend line) will also be breached. Practice shows that if price fluctuations within an established channel failed to reach one of its boundaries, the trend is about to reverse. This, in turn, means that the opposite side of the channel is most likely to be broken in the short-term.

If the price adjustments can not reach the upper channel bound – this is the first sign of that the bottom edge will be digged through soon. Pay attention to that after a failed effort to increase to the upper bound level (point 5) follows a break through of the main upside trend line (point 6).

One more way to use channels is to adjust a trend line. If prices moved far beyond the upper channel boundary, it means that the trend is gathering momentum. If that is the case, most technicians build a steeper major upward trend line. This line starts from the latest low and extends upwards, parallel to the new channel line. It often happens that a steeper support line is more efficient than the old, flatter line. The same holds true for the opposite picture. For example, a price peak failed to touch the upper boundary of a channel in a rising trend. This is when you need to draw another support line from the last dip parallel to the new resistance line, joining the last two peaks.

Channel lines could be a useful tool in determining price targets. Following a break beyond the existing price channel, prices typically cover a distance equal to the width of the channel. Therefore, a trader simply needs to measure channel width and then extend (project) this amount from the point where some trend line was breached.

After a break through of the upper channel boundary (wave 5) the most analysts shape up a new growing trend line, paralleled to the new top channel line. Put it differently, the line 4-6 is traced out in parallel to the line 3-5. As the upward direction dynamics gathers its pace, small wonder that the main upside trend line is to be sharper.

If the prices do not manage to amount to the upper channel bound and the descending trend line is traced through two sequent down-going peaks (line 3-5), then it is possible to construct a probationary channel line. It will take its rise from the fall point 4 alongside with the lines 3-5. At times, this ground channel line is employed as an initial support level for the new tendency.

Remember that out of these two lines, the major line is more important and trustworthy. The channel line plays here the secondary role. However, the use of channel lines may often be efficient for trading purposes. Therefore, we can conclude that this tool holds its rightful place in a technician’s arsenal.

Questions for revision
  1. What criteria can be used to recognize a downtrend and an uptrend?
  2. How to draw a downward trend line correctly?
  3. What are support and resistance lines?
  4. What will happen to a support line after it was broken?
  5. Find an uptrend on the price chart and build a trend line. Send a chart screenshot.
  6. Which price extremes should be connected when drawing an upward trend line?
  7. What does a channel line mean?
  8. Name an event that may act as a signal for adding to long and short positions.

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