The trendline
In an uptrend the price rises and falls, but each low is higher than the one before. Join those lows and you get a line slanting upward beneath the price. A downtrend is the reverse: each high is lower than the last, and the line joins the highs above the price.
- Find the first two clear lowsLows the price clearly bounced from, not just any small candle.
- Join them and extend the lineExtend it forward in time to see what the price does when it gets there.
- Watch for further testsEach time the price returns to the line and bounces consistently, the line carries more weight as a technical level. That makes it clearer historically, not a guarantee it will not break.
- Draw the parallel lineA line with the same slope across the highs completes the channel and shows the two edges the price moves between.
The price channel
When does the line stop describing the move?
When the price closes clearly below a rising trendline and does not get back above it, the line no longer describes what is happening. That does not mean the stock will fall. It means the trend that was clear needs a fresh reading: the price may drift sideways, rise at a gentler slope, or fall.
Draw a trendline
Open the daily chart of any stock and use the trendline tool to join two clear lows. Extend the line and see whether the price came back to it.
Check yourself
1. In a downtrend, what does the trendline join?
2. A low at 20.00 and, ten sessions later, a low at 21.00. How much does the line rise per session?
Summary
- In an uptrend join the lows; in a downtrend join the highs.
- Two points are enough to draw the line, each further test adds to its weight, and a parallel line completes the channel.
- A clear close outside the line means the move needs a fresh reading, not a certain reversal.