Technical Signals                                                                         
Trend line Lines
 
Determining Market Reversals and Continuations

Trend lines are perhaps the oldest tools known to chartists. Trend lines form across peaks and valleys called pivot points - relative highs and lows in a chart. As more points form along a line, it becomes more "established". This means that, when the line is broken, it will likely follow through with a strong move in the new direction.

Trend lines are normally drawn across the lows for an upward trend and the highs for a downward trend. They can be used in multiple ways to help analyze a security, but the two most common ways are to look for trend line breaks or trend line reversals.

Trendline breaks help us identify when a security is reversing. The better established a trend line is (the more touches of the line by price), the more significant a decisive move through this line is to traders. If a trend line break is accompanied with another significant reversal pattern (turn against support or resistance, a breakaway gap, volume climax, etc.) it is further testament to the likelihood of a reversal in trend.

Trendline reversals help us identify a continuation of the current trend. Once price moves to the trend line and then reverses against it (as opposed moving through as in trend line breaks), we can assume that the current trend will continue. Other continuation chart patterns that identify continuation moves are consolidations, measured (or continuation) gaps, and volume trends.