Section 2 – Patterns
How to draw trend lines
Most traders think that drawing trend lines is all about connecting various highs and lows. Without proper knowledge & experience, you would see them everywhere, however not all trend lines should be considered. If you follow the guidelines to drawing good trend lines, there is a high chance that the price will respect your trend line and get repelled by it, or it will break through the trend line resulting in a massive and profitable move. Let's start with some basics.
1. The upper trend line (blue) connects at least two lower highs, so it is sloping down.
2. The lower trend line (blue) connects at least two higher lows, so it is sloping up.
3. The red trend line in the chart is a little controversial when it comes to discussion. It is obviously an upper trend line (connecting two highs), but it is sloping up! Such a trend line alone is not valid unless we deal with “Wedges” and “Flags” as you will see in the next pages.
Remember: an upper trend line is sloping down, while a lower trend line is sloping up.