Key Takeaways
- A trendline is a straight line through swing lows or swing highs that acts as moving support or moving resistance.
- Two touches draw a trendline, a third touch adds evidence that it holds, and every extra touch makes the trendline stronger.
- The trendline bounce and the breakout and retest are the main setups, trading either the line holding or a candle close through it.
- Daily and 4 hour charts often show clearer trendlines than 1 minute charts, which produce more false breakouts, but no timeframe guarantees a reliable signal.
- False breakouts are the biggest trendline risk, so no setup is guaranteed and every trade needs a stop loss.
What Is a Trendline in Trading?
A trendline is a straight line drawn through two or more swing lows or swing highs to show the trend. In an uptrend a trendline acts as moving support, and in a downtrend a trendline acts as moving resistance.
A swing low is a point where price stopped falling and turned up, and a swing high is a point where price stopped rising and turned down. Support is where buying often stops a fall, and resistance is where selling often stops a rise. A trendline slopes with the trend, so its support or resistance moves with price.
Traders use a trendline to see the trend at a glance, filter out small swings and find areas to enter or exit. A trendline is built from past swings, so a trendline confirms the trend that already exists and does not predict where price goes next.
The trend decides which swing points a trendline joins, which gives the main types of trendlines.
Types of Trendlines
There are two main types of trendlines, the uptrend line below higher swing lows and the downtrend line above lower swing highs. In a sideways market, traders use flat support and resistance lines instead.
| Trendline | What it connects | Where it sits | What it acts as | Market |
|---|---|---|---|---|
| Uptrend line | Higher swing lows | Below price | Moving support | Uptrend |
| Downtrend line | Lower swing highs | Above price | Moving resistance | Downtrend |
| Horizontal line | Similar highs or similar lows | Above or below price | Support or resistance level | Sideways market |
A flat line in a sideways market is really a support or resistance level, because a sideways market has no slope for a trendline to follow.
Spreadsheet software also uses the term trendline for a calculated line of best fit, such as a linear or logarithmic trendline. A spreadsheet trendline is a different tool from the trendline traders draw by hand on a price chart.
Knowing the type of trendline tells you which swing points to connect when you draw one.
How to Draw a Trendline on MT4/MT5
To draw a trendline on MT4 or MT5, connect two clear swing lows in an uptrend or two clear swing highs in a downtrend, then extend the line to the right. Both MetaTrader platforms have a built in Trendline tool for drawing and adjusting trendlines on price charts.
- Identify the trend. Open a price chart on MT4 or MT5 and select a higher timeframe, such as the daily chart, to identify the overall market direction.
- Select the Trendline tool. Go to Insert > Lines > Trendline on MT4 or MT5, or select the Trendline icon from the drawing toolbar.
- Choose two swing points. In an uptrend, connect two clear swing lows. In a downtrend, connect two clear swing highs.
- Draw the trendline. Click the first swing point and drag to the second. Position the line so it connects the selected wicks without cutting through candle bodies between them.
- Extend the line. Right click the trendline, open its properties and enable the Ray option (Ray Right on MT5) to project it forward as new candles form.
- Watch for a third touch. Wait for price to approach the trendline again. A third clean touch, especially with a rejection candle, provides additional evidence that price is respecting the line as support or resistance.
- Adjust when necessary. Move the trendline's anchor points when new swing structures justify an adjustment, but avoid redrawing it simply to fit every price movement.
Never force a trendline to fit. If connecting the swing points requires cutting through several candle bodies, the trend is not clean enough to provide a reliable trendline signal.
Treat a trendline as a zone rather than an exact price. Price may react slightly before or beyond the line, so a near miss can still count as a touch. Traders can use the drawing tools on MT4 and MT5 to monitor these reactions and identify potential bounce or breakout setups.
A drawn trendline still needs sufficient price interaction and confirmation before traders treat it as a valid trading reference.
How Many Touches Make a Trendline Valid?
Two touches draw a trendline and a third touch adds evidence that it holds.
- Two touches are the minimum for any straight line, so a trendline with two touches is only a possible trendline.
- A third touch provides additional evidence that price is respecting the trendline as support or resistance, especially when a rejection candle forms. However, three touches do not guarantee that the trendline will remain valid.
- Every extra touch makes the trendline stronger, because price has respected the line more times.
Steeper trendlines are less reliable, and price closes through a steep trendline more easily, because a very fast trend often cannot hold its pace.
Each touch is measured on either the wick or the candle body, and the choice changes where the trendline sits.
Should You Draw Trendlines on Wicks or Candle Bodies?
You can draw trendlines on wicks or on candle bodies. What matters is choosing one method and using it the same way every time.
A wick is the thin line above or below a candle, and a candle body is the thick part between the open and the close. Some traders join wicks to capture the full highs and lows, while others join candle bodies or closing prices to ignore short spikes. The examples in this guide use wicks and never cut through a candle body.
A wick can poke through a trendline and snap back before the candle closes, so judge the trendline on the candle close.
A valid trendline can then be traded in three main ways.
Trendline Trading Strategies
The three most common trendline strategies are the trendline bounce, the breakout and retest and the trend channel. The trendline bounce and the trend channel trade with the trend, while the breakout and retest trades a trend that may be ending.
| Strategy | Best market | Entry trigger | Stop loss | Typical target | Main risk |
|---|---|---|---|---|---|
| Trendline bounce | Clear uptrend or downtrend | Rejection candle at the trendline, ideally on the third touch | Just beyond the trendline or the swing that touched it | Most recent swing, or at least twice the risk | Price closes through the trendline instead of bouncing |
| Breakout and retest | A mature trend that is losing strength | Candle close beyond the trendline, or a rejection candle at the retest of the broken trendline | On the other side of the trendline or beyond the recent swing | Next swing level, or at least twice the risk | False breakout, or no retest so the trade is missed |
| Trend channel | Steady trend with parallel swings | Rejection candle near the lower line in a rising channel or the upper line in a falling channel | Just outside the channel | Opposite channel line | A breakout from the channel |
The trendline bounce is the first setup to learn.
Trendline Bounce
A trendline bounce trade enters in the direction of the trend after price touches the trendline and prints a rejection candle. A rejection candle, such as a pin bar or an engulfing candle, shows price being pushed away from the line.
- Confirm the trend with a trendline that already has two touches.
- Wait for price to pull back to the trendline.
- Look for a rejection candle at the trendline, ideally on the third touch.
- Enter in the direction of the trend when the rejection candle closes.
- Place the stop loss just beyond the trendline or beyond the swing that touched it.
- Set the first target at the most recent swing, or at least twice as far from entry as the stop loss.
- Trail the stop loss along the trendline as new swings form.
A trendline bounce can fail, so placing a stop loss beyond the trendline or relevant swing helps manage risk. This is particularly important in CFD trading, where market volatility, slippage and price gaps can cause a stop loss to execute at a worse price than expected, resulting in losses greater than the planned risk.
When price closes through the trendline instead, the setup becomes a breakout and retest.
Trendline Breakout and Retest
A trendline breakout happens when a candle closes clearly beyond the trendline. Many traders then wait for a retest of the broken trendline before entering.
A breakout can signal that the trend is ending, but a breakout is not always a reversal. The broken trendline often flips its role, so a broken uptrend line can turn from support into resistance and a broken downtrend line from resistance into support. Higher volume on the breakout candle adds confirmation.
An aggressive entry catches the new trend early but runs into more false breakouts.
- Wait for a candle to close clearly beyond the trendline.
- Enter when the breakout candle closes.
- Place the stop loss on the other side of the trendline or beyond the recent swing.
A conservative entry waits for the retest, which filters out more false breakouts.
- Wait for price to come back to the broken trendline after the breakout candle closes.
- Enter when a rejection candle forms at the retest.
- Place the stop loss on the other side of the trendline or beyond the recent swing.
Both entries usually target the next swing level, or at least twice the distance to the stop loss. A retest does not always happen, so the conservative entry can miss the trade.
Adding a second line parallel to the trendline turns a single trendline into a trend channel.
Trend Channel Trading
A trend channel is two parallel trendlines that hold price between moving support and moving resistance. To build a trend channel, draw a line parallel to the trendline through the opposite swings.
- In a rising channel traders look to buy near the lower line after a rejection candle.
- In a falling channel traders look to sell near the upper line after a rejection candle.
The stop loss sits just outside the channel. Waiting for a rejection candle or another confirming signal avoids entering just as price leaves the channel. A candle close outside the channel can signal that the trend is speeding up or ending.
When two trendlines are not parallel, the lines form chart patterns instead.
Trendline Chart Patterns
Triangles, wedges and flags are chart patterns drawn with two trendlines. Triangles and wedges form when two trendlines converge, meaning the lines move closer together until they meet. Flags form from two short parallel trendlines. Each chart pattern has its own entry and target rules, but the same swing point and touch rules apply when drawing its lines.
Seeing the trendline bounce rules on one chart makes them easier to follow.
Trendline Trading Example
In this example, an uptrend line with two swing lows is confirmed by a third touch and a rejection candle, which sets up a trendline bounce trade. The example is an illustration with no real prices, dates or instruments.
- Price forms an uptrend with higher swing highs and higher swing lows.
- Swing low 1 (Touch 1) and swing low 2 (Touch 2) draw the uptrend line.
- Price pulls back to the uptrend line for a third touch (Touch 3), which confirms the line.
- A rejection candle with a long lower wick forms at Touch 3.
- The entry comes on the close of the rejection candle (Entry).
- The stop loss sits just below the uptrend line and the Touch 3 low (Stop loss).
- The target is the last swing high (Target).
- As new swing lows form, the stop loss trails up along the uptrend line (Trailing stop).
If price had closed below the uptrend line at Touch 3, the stop loss would have closed the trade at the planned loss.
The timeframe the example is drawn on changes how reliable the uptrend line is.
Which Timeframe Is Best for Trendlines?
Daily and 4 hour charts often provide clearer swing structures and less short term noise than lower timeframes. However, no timeframe guarantees more reliable trendline signals, and the best choice depends on the trading strategy, instrument and holding period. Each daily or 4 hour candle covers more trading, so small random swings, called noise, have less effect on the swing points a trendline joins.
A top down view uses three timeframes.
- The higher timeframe, such as the daily or weekly chart, shows the main trend.
- The main timeframe, usually the 4 hour chart, is where you draw the trendline.
- A lower timeframe helps time the entry once price reaches the trendline.
On the 1 minute or 5 minute chart, price closes through trendlines often, so intraday trendlines need constant redrawing. The same trendline rules apply on forex, gold, indices, shares and crypto charts.
Even on a daily chart, trendlines fail, and the most common failure is the false breakout.
False Breakouts and Other Trendline Limitations
The biggest limitation of trendlines is the false breakout, when price moves through the trendline and then returns. A false breakout can be a wick or even a full candle close beyond the trendline.
- Wait for the candle close, because a wick through the trendline is not a breakout.
- Wait for a retest of the broken trendline before entering.
- Check volume on the breakout candle, since higher volume adds confirmation.
No habit removes false breakouts completely, so every trendline trade still needs a stop loss.
Choppy sideways markets are the next problem, because price crosses trendlines again and again. Trendlines are also subjective, since two traders can draw different lines on the same chart, and trendlines need redrawing as new swings form.
A trendline is built from past prices, so a trendline confirms a trend and does not predict price. A single trendline does not confirm the trend on its own either, because a line may only reflect a short pause. Practising on past charts or a demo account shows how a trendline method behaves before real money is at risk.
Other tools can help confirm a trendline signal before a trade.
Using Trendlines With Other Tools
Trendlines work best alongside other tools such as moving averages, RSI, Fibonacci retracements and volume. A trendline signal is stronger when a second tool agrees.
- A moving average that slopes the same way as the trendline supports the trend.
- RSI (Relative Strength Index) shows whether momentum still supports the trend at a touch.
- A Fibonacci retracement level near the trendline marks a second area where price may react.
- Higher volume on a breakout candle adds confirmation to the breakout.
The most common trendline questions, from profitability to how professionals use them, are answered next.
Trendline FAQs
Is Trendline Trading Profitable?
Trendline trading can be profitable, but profit is never guaranteed. Results depend on clear entry and exit rules and a stop loss on every trade. Trendlines struggle in choppy sideways markets, and false breakouts cause losses even when a trader follows the rules.
What Is the Difference Between a Trendline and Support and Resistance?
A trendline slopes up or down with the trend, while support and resistance levels are usually horizontal. Both mark areas where price may react. The support or resistance a trendline gives moves over time, while a horizontal level stays at one price.
Is a Trendline the Same as a Line of Best Fit?
No, a trading trendline is not a line of best fit. A line of best fit is calculated from every data point, as in spreadsheets and statistics. A trading trendline is drawn by hand through chosen swing lows or swing highs.
Do Professional Traders Use Trendlines?
Yes, professional traders use trendlines, usually with other tools such as volume, moving averages and RSI. Professional traders know trendlines are subjective and can give false signals, so a trendline is one part of a trade decision.
