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

Trendlines

PrintPrint

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.

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

Two Short-Term Trendlines. First upward sloped, and then downward sloped.

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.