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.
This next chart illustrates 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.