An uptrend line has a positive slope and is formed by connecting 2 or more swing lows blue arrow - below.
A downtrend line, on the other hand, has a negative slope and is formed by connecting 2 or more swing highs red arrow - below. In this process, the share prices move in the upward direction touching new highs.
The share price moves in the downward direction making new lows in the process. Hence, the best indication of a downtrend is the price making a lower top and lower bottom. They move in a horizontal direction for a long period of time. Catching the trend Markets trade in a range or stay flat most of the time.
However, when the price breaks out trades above the range or breaks down trades below the range - the price extends by at least the same amount as that of the range. Key Takeaways Trend lines are amongst the easiest technical tool to understand, but considerable practice is required before we can successfully interpret trend lines.
Markets tend to move in three trends - uptrend, downtrend and sideways trend consolidation.
Trend line violations signal either a temporary interruption or a reversal in the prevailing trend. It is necessary to refer to other pieces of technical evidence to determine what is being signaled.
Explaining Trends and How to Draw Trendlines
A good Trend line reflects the underlying trend and represents an important support and resistance zone. The relevance of Trend lines is a function of their length, the number of times they touch and the steepness of ascent or decent.