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Trend lines are lines drawn on a chart, connected by multiple touch points where some type of powerful reaction occurred. This reaction can be a reversal back toward an opposing trendline, a bounce before another test of the same trend line, or an explosive point where a breakdown can occur.
Trend lines aren’t unbreakable support or resistance lines. If anything, trend lines are meant to be broken.
Trend lines become more valid with the more touches of the trend line. A trend line typically requires a minimum of three touches to become considered valid at all.
Trend lines are meant to give traders a probability-based sense of where a reaction may take place and at what level.
Relying on them too heavily can be dangerous, but they are an important tool in all technical analysis.
Trend lines are typically diagonal, indicating a trend being followed either up or down. When the trend line is broken, that up or down trend may be over.
But because it is likely that many traders are watching the same trend lines, there is always risk of false breakouts that return back through the trend line.
