There is only one thing that Sparrow values more than The Black Pearl and that is what can help us find profitable trading opportunities.
In our world, dear trader, trend lines are an essential tool.
These are straight lines that are drawn on a price chart to connect points of significant highs or lows. They are used 24 hours a day, 365 days a year to identify trends, potential entry and exit points, and support and resistance levels.
What are trend lines?
It is a straight line drawn on a price chart to connect points of significant highs or lows. As we can assume, they are classified as either bullish or bearish.
Bullish trend lines: We draw them by joining two consecutive lows. They represent a support level where demand is greater than supply.
Bearish trend lines: We draw them by joining two consecutive highs. They represent a resistance level where supply is greater than demand.
How to draw
First, we must identify two points of major impact on the price chart. These points can be highs or lows, but they must be points where the price has bounced off.
Once the two points have been identified, a straight line is drawn connecting them. The trendline should pass through both points but keep in mind: it should not touch any other point on the chart.
Why use trend lines in my trading?
To identify trends: If the price remains above an uptrend line, the uptrend is likely to continue. If the price appears stable below a downtrend line, the downtrend is likely to continue.
Determine possible entry and exit points: You could buy an asset when the price reaches a relevant support. If the price bounces off the support, the trader could wait for the price to rise further before selling.
Targeting support and resistance levels: To be forewarned of those times and places where the price tends to bounce or turn down.
How could I know the degree of strength of a trend?
There is no exact method but, several traders usually use this method according to the relationship between the slope (in degrees) and the degree of strength of the trend:
0-10º > Weak
10º-20º > Moderate
20º-30º > Strong
30º-45º > Very strong
45º-90º > Extremely strong
We can calculate this because in TradingView we have at our disposal the "Trend Angle" tool, which works identically to the "Trendline" tool but adding the degrees of slope at the lower end.
This topic can be treated with a bit of yellowness it may be intimidating for many to be unaware or not use them all the time. However, it is important that we do not feel compelled to use them as there are strategies that work well by drawing lines, and there are others where they do not provide any value.
Sometimes, a chart without excess elements allows us to focus better on the price action. Or just draw a line that meets a very specific objective and adds the minimum noise to the simplicity of our chart as let's remember that all this is to make better informed decisions and invest better. The more information, the longer the processing time.
Although you already know that the power of AI can speed up your processing by up to 300% and you're in the right place to soak in the subject.
And that's as far as we've gone for this time, dear trader!
We look forward to reading you in our international community of traders and to hearing about your progress and accompanying you on your way to success.
Until then, all the best and take advantage of the trends!
For this article, prompts have been used to request information
interpreted and provided by AI (Google Bard). Written and edited
by Kevin David Terán and verified by Pedro Arizaleta and Erwin Sánchez