Technical analysis is built on the assumption that prices trend. Trend lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. A proper trend line has to connect two or more peaks or troughs; otherwise, it will be drawn
in space and will have no significance.
UP TREND LINE
An uptrend line has a positive slope and is formed by connecting two of more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises.
A rising price combined with increasing demand is very bullish and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent.
A down trend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Down trend lines act as resistance and indicate that netsupply
(supply less demand) is increasing even as the price declines.
A declining price combined with increasing supply is very bearish and shows the strong resolve of the sellers.As long as prices remain below the down trend line, the downtrend is considered solid and intact. A break above the down trend line indicates that net-supply is
decreasing and a change of trend could be imminent.
SIDEWAYS TREND LINE
A sideways trend line is a horizontal line making neither higher highs with higher lows nor lower highs with lower lows in sequence and may last for a while longer. Sideways trend lines act as support (or resistance) and indicate that net-demand/supply is balanced.
Sideways price movement, also called consolidation and a trading range, is when a market does not trend. Prices over a period of time move within a relatively tight sideways range. This means that the forces of supply and demand are evenly balanced. Again, 2 or more points on both the price highs and lows are required to confirm the sideways trend.