Identifying trends is a useful skill to have if you're looking to take your trading to the next level. Start by learning trend lines ⤵️
Technically, trend lines can connect any two points in a chart. But, most chartists agree that using three points or more is what makes a trend line valid. In some cases, the first two points can be used to define a trend in potential, and the third point can be used to test its validity.
In financial charts, the scale relates to the manner in which the change in price is displayed. The two most popular scales are arithmetic and semi-logarithmic . On an arithmetic chart, change is expressed evenly as the price moves up or down the Y-axis. In contrast, semi-log charts express variations in terms of percentage.
It’s important to consider the scale settings when drawing trend lines. Each type of chart may result in different highs and lows and, thus, slightly different trend lines.While they are useful tools for technical analysis, trend lines are far from foolproof. The choice of points used to draw trend lines will affect the degree to which they accurately represent market cycles and real trends, making them somewhat subjective.
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