Technical Analysis · Beginner · 5 min
Trendlines and channels
You can draw a trendline through swing lows or highs, add a parallel channel line and explain what a break of the line can and cannot mean.
One straight line
The simplest tool in charting is a straight line. No settings, no formulas, no indicator. Just two points and a ruler.
Drawn well, a trendline shows the slope of a trend at a glance and marks where pullbacks have tended to stop. Drawn badly, it becomes a line that can be bent to fit any opinion. This lesson shows the difference.
Lows, then a parallel
A trendline is a straight line through swing points, extended into the future:
- In an uptrend, it connects at least two swing lows. It sits under the price.
- In a downtrend, it connects at least two swing highs. It sits above the price.
Any two points make a line. A third touch is what makes a trendline interesting, because it shows that pullbacks keep ending near the same slope. Many traders give more weight to lines with three or more touches and to lines on higher timeframes.
A trend channel adds a second line, parallel to the trendline, through the swings on the other side. In an uptrend, the channel line runs through the swing highs. The channel shows the typical width of the swings: where rallies have tended to run out, and where pullbacks have tended to end.
Some practical rules:
- Draw through clear swings, not through every small wiggle.
- Wicks or bodies? Traders disagree. Some draw through the extreme wicks, others through the bodies. Pick one method and use it consistently.
- Check the scale. As the lesson on scales showed, a straight line on a linear chart is curved on a log chart. Over long periods, the log scale is often more useful.
A break of a trendline shows that the slope of the trend has changed. It does not prove that the trend is over. The swing structure from the last lesson is the more objective test: as long as the higher lows hold, an uptrend can simply continue at a flatter angle.
A third touch
In the fictional chart, the first two swing lows are at 101.54 on candle 9 and 103.82 on candle 17.
- The line through them rises about 0.29 per candle. Extended, it reaches about 106.10 at candle 25.
- The actual low on candle 25 is 106.22, almost exactly on the line. That is the third touch.
- The dashed channel line, drawn parallel through the high on candle 6, meets the highs near candles 14 and 22-23 closely.
A trader reading this chart would see an orderly uptrend moving within a channel about 2 points wide. A later close well below the trendline would be a reason for attention. A close below the last higher low at 106.22 would weaken the uptrend's structure itself.
Common mistakes
- Redrawing the line after every break. A line that keeps moving explains nothing.
- Drawing through one point. Two points make a line, three make it meaningful.
- Treating any break as a reversal. Check the swing structure first.
- Mixing wicks and bodies. Use the same method on every chart.
The takeaway
A trendline connects at least two swing lows in an uptrend, or highs in a downtrend. A parallel line through the other swings forms a channel.
Check yourself
Quick quiz
4 questions. Instant feedback, nothing is saved.
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1Tap the trendline that connects the swing lows.
Tap the chart.
In an uptrend, the trendline is drawn through the swing lows. The dashed line through the highs is the channel line.
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2How many swing points do you need to draw a trendline?
Any two points make a line. A third touch shows that other traders may be paying attention to it too.
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3What is a trend channel?
In an uptrend, the trendline runs through the lows and the parallel channel line through the highs.
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4A price closes below a rising trendline. What does that mean?
Trendlines are subjective and breaks are common. The higher-low structure from the last lesson is the more objective test.
of 4 correct.