Trend lines connect swing lows (uptrend) or swing highs (downtrend) to define the trend direction and provide dynamic support/resistance. Channels add a parallel line to create a trading range within the trend. Trend line breaks signal potential trend changes. Valid trend lines require at least two touches, with three or more being more significant.
Uptrend line: connects ascending swing lows (rising support). Downtrend line: connects descending swing highs (falling resistance). Parallel channels: trend line + parallel creating a range. Inner trend lines: steeper lines within the main trend. Fan lines: multiple trend lines showing acceleration/deceleration.
Buy at uptrend line support (at least third touch), Sell at downtrend line resistance (at least third touch), Trade within channel: buy at support, sell at resistance, Channel breakout trade: enter on break + retest of channel boundary
Target the opposite channel boundary for range trades. For trend line break trades, measure the channel width and project from the break point. Stop beyond the trend line + buffer.
All timeframes — use higher TF trend lines for bias, lower TF for entries
Be careful drawing trend lines to fit your bias. Valid trend lines should be obvious — if you have to hunt for them, they probably aren't significant. The steeper the trend line, the more likely it is to break.
Fibonacci retracements identify potential support and resistance levels by measuring the percentage pullback of a prior price swing using key Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels often coincide with where pullbacks within trends tend to find support or resistance, making them essential for entry timing.
Divergence occurs when price action and an indicator (RSI, MACD, CCI, OBV) move in opposite directions, signaling weakening momentum and potential reversals. Regular divergence signals reversal. Hidden divergence signals continuation. Divergence is a leading signal — it warns of momentum shifts before they appear in price.
Moving averages smooth price data to identify trend direction and dynamic support/resistance. The Simple Moving Average (SMA) weights all periods equally; the Exponential Moving Average (EMA) gives more weight to recent prices. Key MAs: 9/20 EMA (short-term), 50 SMA/EMA (intermediate), 200 SMA (long-term). Golden/death crosses and MA ribbons are widely followed signals.
The Relative Strength Index (RSI) and Stochastic Oscillator are bounded momentum indicators that identify overbought and oversold conditions. RSI (default: 14) ranges from 0-100; readings above 70 suggest overbought, below 30 oversold. Stochastic (default: 14, 3, 3) measures where the close falls within the recent high-low range.