In this post, we are going to discuss all about the magic of the trendline,
the most common indicator in the share market, which is used by almost all
traders.

Whether it is NSE, BSE, Bank nifty, or NASDAQ, anything in India or outside
India, it doesn’t matter what stock is there; trendline works fine anywhere,
wherever you make it.

It is true that there are no traders in the world who don’t use the benefits
of Trendline.

Small and simple things are always beneficial. Whether you talk about the past
or the future, trendlines are and will be beneficial for traders and
investors.

Let us point out all the pros, cons, and factors of using trendlines.

Trendline

You will see many definitions of the trendline on Google, but the fact is that
they are so bulky and big that the main essence of the definition skips
anywhere in that lengthy definition.

As we know, simple things are always very complicated to understand because we
people are so indulged in this mixed-up world that our minds become so narrow
that we knowingly reject understanding the perfect simple way of using or
applying trendlines to our stocks.

Simple meaning of a trendline

• low to lower
• high to higher

Low to lower: it is not just connecting low to lower; it
seems to be very simple. The newbies get stuck on this. What they think is
that after connecting the lower and upper, the making of a trendline is
complete, but there are lots of factors involved in making a perfect
trendline. Follow these steps before making a trendline that has a
downside:

 

• Take a line tool and stretch the downside with one point of the line
  touching the low and the second point touching the lower-low.
• After completion of the first step, check once more whether you have
  touched both the low and the lower low of the stock on which you are
  trying to make a downside trendline. The making of the downside
  trendline is complete.

 

High to higher: as we have done the downside trendline
above, the same procedure has to be followed here to make an upside
trendline, to see the upside movement of the stock. Follow the steps to
make an upside trendline.

 

• Take a line tool and make sure that you attach one point of the line
  tool to a high and the other one to the higher high to complete making
  an upside trendline.
• After complete making, make sure you check once more to be sure about
  the making of the perfect upside trendline.

Example:-

• [accordion]
  • High to Higher
    • Here is an example of the high-to-higher trendline. As you can
      see, in this Reliance stock, we have created a trendline
      stretching the line from the high to the higher point of the
      candlestick.

      High to higher trendline

  • Low to Lower
    • For the second example, we have taken the same stock to show in a
      lucid way to teach you all about the perfect stretching of the
      trendline from low to lower.

      Low to lower trendline

Is close important for the trendline?

It is the most important question, which only a few people have asked.
But the answer is definitely one of the biggest mythbusters among the
traders of today’s world.

Yes, of course, if you are not looking for the closeness of the
candle, then you are going to miss the perfect making of the
trendline. If you think that high and low are important for the making
of the trendline, then you should not forget to see the close of the
candle to be very accurate in the making of the perfect profitable
trade.

Sometimes you will see that some of the stocks react too much to the
close and become a support if it is coming down and a resistance if it
is going up, and if the reverse happens, then there is the possibility
of the stocks gaining in the opposite direction.

How to make a trendline following the close of the candle

Very simple; just do the same process as you are doing for the high
and low stretching of the trendline to the stock.

Close to close stretching of trendline

But a slight difference: if you are going for the close making of the
trendline for the stocks following the close of the candle, just see
that you are attaching the high close to the higher close.

Same to the low-close making of the trendline, the only thing to
remember is that you should attach the low close to the lower close.

Can a trade be taken only on the basis of the close trendline?

First of all, a close trendline is nothing but a trendline that is
made following the close of the candle of the stocks.

See, the perception of the traders is that looking at everything, like
charts, patterns, lines, and indicators, can boost the accuracy of the
trades. Somewhere down the line, it is true, but not wholly. If you
look at only one thing, then you are also going to make a good profit.
Coming down to the question, yes, only a trendline following the close
of the candle can make us profitable.

The reason we talked here about the dominance of the close is only
because if the stock is not going above the close figure, then there
should be

Something vital about the close figure, isn’t there?

There is always something about close. The closing of the candle makes
a future prediction of the opening of the candle for the second day if
we are trading the stocks in a day chart.

Open to Open stretching of trendline

This is very rarely discussed by any traders because it has been very
rarely used in trading. There are two ways of looking at this, and they
are:

1. open higher to high: it simply means that we are going to stretch the
   line on the bearish candle because if the open is higher than close,
   then it simply means that the candle is a red or bearish candle.

   Higher to high open trendline

2. open lower to low: simply by stretching the line from the lower to the
   low of the candle, this is probably going to be the bullish candle
   because if the open is lower than the close, then the candle is
   bullish and ends in closing green at the close of the trading
   session.

   Lower to low open trendline

So far, we have learned about the making of trendlines based on high to
higher, low to lower, close to close, and open to open.

Probably this is all we are going to do with the trendline. Every angle
has been discussed here, as have the ways in which trendlines can be
stretched.

Types of Trendlines

Basically, there are two types of trendlines, and they are:

• one-side trendline: which is basically stretched on the one
  side of the chart or the stocks of the market on which we are applying
  the trendline. and
• two-sided trendline: this is basically known as the parallel
  trendline, which is stretched on both sides of the candlestick,
  following the low to high, open to close, or both.

Open, close, high, and low are the most important things to see and
remember in the trading atmosphere because they are not randomly
happening; there is some importance in their happening, and if we perceive
correctly all that, then trading would be profitable and less loss could
happen.

Where do we get the trendline option in the chart?

It really depends on the trading platform on which your account is based. Normally, it is the same on all platforms; there might be some differences, but overall, you will find the options very similar.

Let us take the example of the Zerodha platform. Follow the steps below to use it now.

• Login to your trading-associated account.
• Then go to your marketwatch, where you all save your stocks, or just open any candlestick chart.
• If your account is in zerodha, then as soon as you open your chart, you will see a pencil icon written as Draw. Click on it.
• Then select tools and select lines.
• Go to lines and select the line (this is the tool with which we are going to use it as a trendline).

Live example on Trendline

After coming to this point on this crucial topic of trendline, as we have discussed all the necessary and everything needed to make a perfect trendline, let us take a live example of trendline on the live market.

Here we are taking an example of three stocks, Reliance, TCS, and SBIN Stock, on the Zerodha platform with a time period of 3 minutes.

 

1. Let us start with Reliance stock first, as today is December 4, 2023, and the timing is nearing 1 p.m. The price is 2416.70.

As we are seeing, a simple trendline on the chart is too simple, with no other indicators on the chart, only a simple trendline to clear our vision on the chart and the trendline.

Furthermore, we can see that a bearish candle has broken a trendline. Let us come to the main prediction.

Now, the trendline we are seeing happens to be a resistance if the stock goes up, and there is a strong prediction of a fall in the stock. We are bearish on this stock as it is trading below the trendline.

Verdict: downside or bearish.

 

Result:

As we can see below, as per our verdict, it should be bearish, but here we see that it was not bearish, but instead it was below the trendline, which we have stretched for our study.

So our trendline was up to par and perfect, as the stock is not letting it go above the trendline. And in the coming days, you will find that the stock is going down, if not breakout the trendline with a good volume or simply with a big green candle, to make an upside move to become bullish.

 

2. Let us now talk about TCS. The time period is 3 minutes, dated December 4, 2023, and the price is 3502.85. Look at the chart below and assume what will happen next as per our prediction on the basis of the trendline.

Well, if you find that the stock is bearish, as we can see a fall in the stock, then your assumption and study are going right.

The trendline is stretched from lower to lower, as we have read above.

Now, what should be our prediction in this? If the stock goes down the trendline, a fall can be seen, and if it stays in the trendline, a support is happening. An upside cannot be predicted because the stock is in decline.

verdict: downside or bearish.

 

Result:

 

In the second prediction of the stock following the study of the trendline, we assumed it to be bearish and to make a move downward, but here too, we were not accurate.

But it gave us a good lesson that the trendline is so sensitive that after it broke down with the bearish candle, instantly within the second candle, it broke up and made it a positive side.

As you can see, the two arrows on the chart indicate that the trendline was perfect, as it was accurately following the trendline.

3. Now come to the last stock of our prediction SBIN, dated December 4, 2023. The time period of the chart is 3 minutes, and the price is 591.95.

This is the two-sided trendline, as we have already discussed above.

One question may be arising in all:

Why have we stretched the two-sided trendline here and not in the other stocks?

The answer is simple because there are some stocks that may have a sideways market, and that’s why it becomes important for us to stretch it to be accurate in our study of the market and to follow the trend of the stocks.

The SBIN stock is now having an upside move; even if it comes down to the trendline, a support should be expected, and if it goes down the trendline, a fall can be expected, so our last verdict for the stock is bullish as we can see an upside movement in the stock.

verdict: upside or bullish.

 

Result:

 

Finally, we got the perfect trendline, which gave us a profitable trade after the two stocks that we studied with the help of the trendline to get the best result for the trendline.

What we have learned from the live example above is:

We have intentionally taken the three stocks to teach you the three possibilities of the trendline, which can happen if you are going to take a trade on the basis of the trendline. And the three sides of the trendline we have seen above are:

1. Trendlines can be wrong if they break on one side and instantly break on the other side. Basically, it is not wrong; actually, we have to be with the trend, that’s all.
2. After the candle breaks on any side of the trendline, it may take time to react on the side on which it is breaking.
3. Lastly, the trendline can react perfectly as per our study.

pros and cons of trendlines

pros

• Trends can easily be predicted, as they help find the trend of the stock.

cons

• It is time-consuming as the trendline changes with time, so to check the perfect trendline, it takes time.

Last thought on trendline

Trendline is a free tool, and you do not have to pay anything for it. Most people underestimate things when they are free, and when the same thing charges anything, they will take those things seriously.

Almost everything we have covered in very simple terms to let you all understand the full use of trendline with all its pros and cons.

The use of trendlines is very important for traders, investors, and all who do share trading because it shows the trend of the stocks, as we all know that “trend is the king.”. If we know the trend, our task of trading becomes easier.

There should be the use of trendlines if we are technically analysing the stock.

FAQs on Trendlines

• • Does the trendline represent all we need to trade?
    • No, there are many other factors we need to know before trading. The trendline is one factor that should be important to follow to take any trade.
  • How accurate is the trendline?
    • Well, it depends on your perfection in how you use it. There are certain cases where the trendline does not work at all; for example, when the trendline is saying something but at the same time certain opposite news comes for the stock, hence rejecting the trendline.