A lot of technical indicator
rely on the concept of trendlines. A core part of Dow Theory
is the concept that stock prices trend for varying periods, and
this trending can be visually displayed with "trendlines" (a line
drawn between two or more significant points on a chart). Rising
trends are shown by a trendline drawn between two or more lows identifying
price support, while falling trends are shown by trendlines drawn
between two or more highs identifying price resistance.
The general principle
of trendline analysis is that once a trend has been formed (two
or more highs/lows have moved to touch the trendline but then subsequently
reversed) the trendline will remain intact until broken. While this
is admittedly a very subjective area, a lot of technical analysis
ideas revolve around it including Gann angles and fibonacci fans.
The varieties of trendlines are infinite, and beyond the scope of
this article. Day trading systems often employ trendlines as a way
of providing visual confirmation of where support and resistance
lies. In this respect trendlines can help the day trader, although
the best support and resistance levels are of course the SureFireThing Camarilla Equation.