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 Downward Trend 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 another one sloped downward at the peak of the first lines trend
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.