How to trade with Trendlines?
-- When a stock or index breaks the trendline, volumes need to surge. Follow-up buying confirms the trend.
-- The breaking candle needs to decisively close to carry forward the same momentum.
-- One can also take the assistance of technical indicators that exhibit overbought and oversold conditions.
-- The stop-loss can be considered as the highest high/ lowest low of the last two sessions.
How reliable is a trendline indicator?
This indicator provides relevant information about the trend; however, in a short time-frame, it also reflects wild swings. Due to this, trendlines are majorly used to gauge the medium-to-long term view. Herein, a trendline break helps one build or exit their positions.
On the short-term scale, the trendline indicator needs assistance from the volume parameter. It is very unlikely that trendline alone can perfectly identify a shift in sentiment.
It is extremely difficult to identify the right high or low to draw a perfect trendline. Sometimes, the price action is furious and unpredictable, with wild swings, making identifying a perfect price level quite complex.
Apart from these, trendlines play a significant role in chart formations. Patterns like the Rising channel pattern, Falling channel pattern, Ascending triangle, Symmetrical triangle, Descending triangle rely on trendlines for their formation.
What is the right time to look for a trendline break?
-- When the entire sector or benchmark indices are in extreme bullish phase
-- When the price trades in the consolidation range for quite a while
-- The price starts scaling highs without any healthy corrective moves
-- The stocks witnesses a rise in volumes without the price showing any volatility