There exists two kinds of trendlines when it comes to trading analysis: the support trendline, and the resistance trendline, also called the pressure trendline. Trendlines are very commonly used indicators by traders. A trendline consists of an average direction of all the up and down fluctuations that occur in a period of time. Different periods of times would then give different resistance and support trendlines, it is thus important to remember that trendlines can be used to predict long term moves but that they require a lot of patience to trade on.
The support trend line is composed of several support positions (high points), and a support trend line can be drawn by two or more support positions. It is common for buyers to buy in to a stock at support levels.
The resistance trend line, also known as the pressure trend line, consists of several resistance levels (low points). Two or more resistance levels form a resistance trend line. It is common for sellers to sell their stock at resistance levels.
The uptrend is characterized by higher and higher resistance levels (highs) and lower and lower support levels (low points), with an upward trend indicating increased buying pressure.
The downtrend is characterized by lower and lower resistance levels (highs) and lower and lower support levels (low points), with a downward trend indicating increased selling pressure.
Things to Note When Drawing a Trendline
Taking the uptrend in the above figure as reference: When the candles cross under the support lines, the uptrend can be considered broken. When that happens, wait and see how the situation unfolds before making a decision. If the next candle continues to fall (for a total of two candles falling under the support line), now is a good time to enter. Go short at 3415 and set the stop loss to 3499. After entering the market, consider using a trailing stop in your strategy. With this order, when the price drops to 3400, the stop loss will be moved to the entry position at 3415 and protect your profits. In this way, even if the market rebounds, it will not cause a significant loss. A take profit can be set at 3322 as it correlates to a previous support level. Another strategy is to monitor the chart and see if the candles can break past the 3322 mark and only take profit once the situation seems to reverse.
Q&A with an experienced trader
Q: Is it necessary to set a take profit when trend trading?
A: Generally speaking, if the trend is judged correctly, the stop loss can be pretty set low, and the profit can be guaranteed. A take profit can be set, and when the trend shows signs of reversal, the stop loss should be moved to lock in the profits.
Q: For how long is a trend line generally usable?
A: There is no clear answer regarding the trend trading time. However, when trend trading, do not switch the length of time at which you trade too frequently and continue to use the same time period to improve your understanding of it and winning rate.
Q: According to your past experience, what is the most important thing when making a single order?
A: Mentality and discipline are very important. It is necessary to control the profit-and-loss ratio. Otherwise, it could easily affect your trading mentality. First, carefully consider the part that may be losing money. 1 to 5% of the position is an operable range. The most important thing is to remember that you will have losing trades but that you need to close down and limit your losses when that happens, and take in steady profits instead of gambling it all away.
* This content does not represent the views of Bybit. As such, it should be not be seen as trading and financial advice, it is merely an opinion. Trading is done at your own risk.