Trendlines and Channels
Connect a series of rising lows and you've drawn an uptrend line; add a parallel line and you have a price channel.
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Text version · Technical Analysis: Candles & Charts, lesson 5: “Trendlines and Channels”
Connect a series of rising lows and you've drawn an uptrend line; add a parallel line and you have a price channel.
Two points make a line; a third confirms it
An uptrend trendline connects rising lows; a downtrend line connects falling highs. Add a parallel line and you have a channel.
Decisive break = warning
While price follows a trendline, the line acts as support or a ceiling; once it breaks on heavy volume, the trend may be changing.
Retest after the break
After a trendline breaks, price often bounces back to the line and gets rejected there. That's a retest: old support has become a ceiling. Also, very steep trendlines are hard to sustain and break more easily.
Key takeaways
- An uptrend line connects rising lows; a downtrend line connects falling highs. Two points make a line, and a third touch confirms it.
- While the price follows a trendline, the line acts as support or resistance. Very steep trendlines break more easily.
- A trendline broken on high volume warns that the trend may be changing. After the break, the price often retests the line and stalls there.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- In the uptrend, click two gray lows that step higher: on which bar is the touch labeled "3rd point confirms"? Then click "Redraw" and deliberately pick two lows where the second is lower than the first. What does the explanation card say?
- Turn on "Channel" and see which high the parallel line passes through. How does price move back and forth inside the channel?
- Click "Play what's next": how many times normal volume was the candle that broke the trendline?
- Switch to "Downtrend": should you connect highs or lows this time? What stamp appears when it breaks?
Quiz and explanations
- 1. An uptrend line should connect…
- Answer: The rising lows.An uptrend is defined by higher and higher lows.
- 2. The price breaks below an uptrend line on high volume. What does that suggest?
- Answer: The uptrend may be ending.Losing the trendline is a warning that the trend may be changing.
- 3. After breaking below an uptrend line, the price bounces, rises to just below the line and is rejected. What's this called?
- Answer: A retest: old support has become resistance.Coming back to the line after the break and getting rejected shows the line has switched from support to resistance.
Terms in this lesson
- retest (Retest): After price breaks above or below a line, it comes back to test that line; old support often turns into resistance here, and vice versa.
- price channel (Channel): The zone between a trendline and a parallel line, where price often travels.
- trendline (Trendline): A straight line through a series of highs or lows that shows a trend's direction and slope.