LeoGlossary: Trendline (Technical Analysis)

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Also called a Dutch line since the use started in Holland.

This is used in finance to see determine the sentiment of the markets either overall or in a particular asset. It is usually a part of technical analysis.

A trendline is a connecting of two data points on a chart to enable traders or investors to get an idea of the trend.

These are indicators of price action, not business fundamental. Many using technical analysis focus upon price movement only and are not focused upon the underlying business.

The two types are:

  • supporting trendlines which show the support (bottom end) of a security
  • resisting trendlines which is the resistance (top end) of the price range

Support and resistance lines are very important to traders. They often will buy at support while selling (or going short) at resistance.

Trendlines can be used as a tool for confirmation. For example, traders will often enter (buy) an asset if resistance is pushed through. On the reverse, selling will occur if support does not hold.

These matters might indicate a new trend emerging, something that could be signaled by other indicators.


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