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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. |
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