How to Draw a Trendline That Holds Up

Any two points on a chart make a line. That is the whole difficulty with trendlines, because once you know you can connect anything, the temptation is to connect whatever supports the view you already had. A good line is one a stranger would draw in the same place.

Start with the right timeframe

Before drawing anything, decide which chart you are reading. A line across three months of daily candles and a line across three years of weekly candles describe different trends, and both can be correct at once. If you hold positions for weeks, the daily chart is where your line belongs. See choosing a chart timeframe from your holding period.

Anchor on swing points

An uptrend line runs under the price and connects swing lows. A swing low is a bar with higher lows on both sides of it. A downtrend line is the mirror image, running above the price and connecting swing highs, which are the visible peaks on the chart where sellers took control for long enough that the market turned back down.

Pick the two most obvious ones.

The first anchor is usually where the trend began. The second should come after a real rally and a real pullback, far enough from the first that the line has some length. Two lows a few bars apart will give you a line with a slope that means almost nothing, since a small change in either point swings it wildly.

Then extend the line to the right and stop adjusting it.

Wicks or bodies: pick one

Candles have a body and wicks. The body runs from open to close; the wicks mark the high and low. Some chart readers anchor on the wick tips because those are the actual extremes where trades happened, while others anchor on the bodies on the argument that a brief wick printed on thin trading is noise and the closes show where the market actually settled for the period.

Either works. Mixing them is the problem. If you anchor one point on a wick and the next on a body because it makes the line look cleaner, you have fitted the line to your preference, and it will not hold up for anyone else who looks at the chart. Write your rule down once. Apply it to every chart.

Wait for the third touch

Two points define the line. A third confirms it. When price comes back to the extended line later, touches or nearly touches it, and turns away again, you have evidence that other participants see the same level and are acting on it. More touches add weight, up to a point. A line that has been tested five or six times has also been leaned on five or six times, and some traders read that as a support level getting worn down.

Be honest about near misses. A third low that clearly undercuts the line is a failed test. Redraw it.

Check the scale

On a short chart it makes little difference whether the price axis is linear or logarithmic. On a long chart with a big move, it changes where the line sits. A linear axis spaces equal dollar moves equally. A log axis spaces equal percentage moves equally, so a stock rising at a steady percentage rate traces a straight path on log scale and a curve that bends upward on linear.

Neither line is more correct. Know which one you drew. A break on one scale may not be a break on the other. When to switch a chart to log scale covers the setting itself.

Distrust steep lines

Steep lines trace bursts of buying. Bursts end. Price can keep rising at a gentler slope and still fall through a steep line within days, which leaves you with a “break” that describes nothing more than a stock slowing down from an unsustainable pace to a normal one. When the angle looks extreme, look for a longer, flatter line underneath it that connects older swing lows. That one usually carries more meaning.

Read the break for what it is

Sooner or later, price closes through the line. A break tells you the trend has changed in some way: it may have ended, flattened, or reversed. It does not tell you which. A close through an uptrend line followed by a quick move back above it happens often enough that many traders wait for a second close, or a retest from the other side, before they act.

So decide in advance what a break would mean for your position. Maybe it triggers a review. Maybe a stop was already sitting below the line. Pair it with something independent of the line itself, such as the volume on the breaking bar or where price sits relative to the 50 and 200-day moving averages, and you’ll have two pieces of evidence pointing in the same direction before you commit.

What makes a line fall apart

Redrawing after every break is the most common problem. If a line keeps getting nudged to stay under the price, it has stopped being a trendline and become a tracing of the chart. Forcing a line through too many points is another: real trends are messy, and a line that touches seven lows exactly was probably adjusted until it did. Last, a trendline carries no information about why a trend exists. Earnings, sector moves and news drive price, and the line only records the path.