Crypto Academy

What are trend lines?

What are trend lines?

4 min reading

It’s that time to understand all things considering trend lines. Read this article to improve your cryptography skills.

Trend lines

What are trend lines?

What are Trendlines?

Considering that you have all the information you need about cryptocurrencies and are ready to trade and follow the chart for higher rates. According to the Cambridge Dictionary, a trendline can be defined as the direction in which a situation is moving, specifically as shown by a line on a chart. But what are the trend lines in the financial markets? These are diagonal lines drawn on graphs that link specific data points, which makes it easier for charts and traders to view price movements and identify market trends. 

Trendlines are regarded as one of the main tools of technical analysis and are used on the stock exchange, fiat currencies, financial derivatives, and even cryptocurrencies. They are made up of diagonals, not horizontal lines, and serve as support and resistance levels.

Types of Trendlines

Trendlines can be divided into two categories: up and down. An uptrend is plotted from a low position to a high position on the chart and connects two low points, while a downtrend is drawn from a high position to a low position on the chart and connects two highs and gives the investor an idea of where the investment is headed.

These points mark either consecutive highs or successive lows on a price chart. With an upward sloping, the line is drawn using the highest points on a chart while with the downward trend, the lines are drawn based on the lowest points on the chart. These points are drawn within a time frame which could either be one minute or ten minutes interval. 

What is support level?

As we previously mentioned, trendlines are used to identify support and resistance levels, two important concepts in technical analysis. What is the level of support and resilience on a trend line? A support level is a level that tends to hold the price down, preventing it from falling. At the level of support, prices can decline only under strong pressure from sellers. Traders and charting specialists usually draw support lines based on previous lows. 

When a support level is broken, it becomes a resistance level. It is always recommended to consider two low points when drawing support lines.On the other hand, a resistance level is the exact opposite of a support level.

This is a level that the price of an asset cannot cross due to strong selling pressure. Due to the large supply of sellers in the price area, the resistance level tends to act as a limitation. Technical analysts draw resistance lines based on previous highs, which is a useful technique, especially when it comes to predicting potential price reversal points. When the resistance level is broken, it becomes a support level. Also, as in the case of support lines, it is always recommended to take into account at least two high points when building resistance lines. The more glasses you use, the more reliable they will be.

How to use trend lines

On our bit4you platform you can explore charts like the one above, where there are high and low points, and not all trends have the same weighting. The more often a trend line is tested, the stronger it is considered. Likewise, if it is drawn over a longer period, it is considered more solid. When the trendline is broken, it means that the trend is broken and can be reversed. When this happens, traders use it as a trading signal to trade against the trend. It is always recommended to wait for a signal before trading against the trend as this can be a trap. Note that an uptrend line indicates support levels below which the price is unlikely to fall, while a downtrend line indicates a resistance level above which price is likely to rise.

Formulas

Next, we describe the equations used by Excel to determine the trend lines of several categories.

In a linear trendline equation, the least squares method looks for slope and intercept coefficients such that:

y = bx + a

For an exponential trendline, Excel uses equations of the following form:

y = aebx

Below is the equation for a logarithmic trend line in Excel:

y = a*ln(x)+b

You can use the following equation to construct a polynomial trend line in Excel:

y = b6x6 + … + b2x2 + b1x + a

The power trendline in Excel is based on a simple equation

y = axb

Conclusions