EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Trendlines

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Trendlines can be used to identify both long- and, short-term price trends. They are also used to indicate Support and Resistance prices and Channels (covered later). A trendline only has significance if it touches at least two price points. The chart below shows an obvious long-term downtrend going back one year.

Trendline showing general downward slope.
Long-term downtrend going back one year.

This next chart illustrates two short-term trendlines, one up and one down.

Two Short-Term Trendlines. First upward sloped, and then downward sloped.
Two short-term trendlines, one up and one down.

When one trendline connects two or more price points and another trendline connects two or more price points in parallel fashion, they form a “Channel,” as shown below. Channels have significance in that traders look for prices to move above or below the confines of the Channel. This is referred to as a “breakout,” and depending on the number of days that form the Channel, this can occur with good momentum, resulting in a large price move in that direction.

Trendlines - Channel. Both trendlines are upward sloped and parallel. Described in text above.
Example of a channel.