3 strategies and a complete guide to trendlines in trading.

You will learn everything you need to know to professionally draw and trade using trend lines, because this is a masterclass on trading with trend lines.

Most traders draw trends incorrectly: they guess whether to connect wicks or candle bodies? How to distinguish a bounce from a breakout? This guide will clear up the confusion: we'll teach you a simple way to draw them + 3 setups with a secret filter. Let's get started!

What Are Trend Lines?

A trend line as a basic tool of technical analysis is a straight line drawn through two or more significant turning points (local extremes) on the price chart to visualise the direction of the price trend. It serves as the foundation for many trading strategies.

In an uptrend, these lines act as dynamic support; in a downtrend, as dynamic resistance.

The more touch points the price has with the line (for example, 3-4 touches instead of 2) and the longer it has existed, the higher its statistical significance and reliability for analysis.

By the way, if you're still confused about chart structures, check out our basic guide to Japanese Candlesticks, and for a smoother trend display without excess noise, try Heikin Ashi candles.

Why Do You Need Trend Lines?

Before learning how to draw trend lines, you might wonder: why are they even needed? The reason is quite simple. When price moves up or down, trend lines act as support and resistance levels for the price. Price often bounces off the trend line before continuing the trend.

When price breaks beyond the trend line, it is often a sign of a reversal. Therefore, drawing trend lines is very important if you want to trade in a trending market.

The Concept of Swing Points and Drawing the Line

To draw a trend line, you need to understand the concept of swing points. Swing points are areas on the price chart where the price has shown a sharp V-shaped reversal move.

• When we notice an upward reversal, we call that point a swing low.
• Similarly, when we notice a downward reversal, we call it a swing high.

A trend line can be drawn by connecting either swing highs or swing lows.

To draw a valid trend line, you need at least 3 swing points. When there are at least 3 swing highs, you can draw a valid trend line.

Similarly, with 3 swing lows, a valid trend line can also be drawn.

But the question is, how to connect these swing points? Connect bodies or wicks? The answer: draw them so that the line touches as many swing points as possible!

For example, look at the chart below. You have 4 swing highs. The line through the bodies will touch only 2 points, the line through the wicks won't touch the highs at all. Neither is optimal and both give false touches.

Now, if we use our method of maximum touches to draw the line, the trend line would look something like this:

You can see that at this swing point, the wick of the candle broke our trend line but closed below it. And that is perfectly normal.

Treat trend lines as price zones where buyers and sellers react to price changes.

When price touched the trend line again, it met resistance and moved lower. We could have anticipated this if we had the trend line drawn.

So, trend lines are drawn using significant extremes (swing highs and swing lows), forming dynamic support and resistance zones, and a bounce from them gives a signal for a potential trade. However, to become a master of trend lines, you need to study two key types: long-term and short-term trend lines.

Long-term and Short-term Trend Lines

A long-term trend line is exactly what we discussed above. It is drawn by connecting at least 3 major swing points. These lines are significant support and resistance zones, so price is highly likely to bounce when it returns to the trend line.

On the other hand, if price does break the trend line, it will be a serious reversal signal, heralding a large move in the opposite direction.

And for those who trade on higher timeframes and look for global market tops (especially on Bitcoin), the Pi Cycle Top indicator is an excellent addition to trend lines.

Now let's move on to short-term lines – they are also important.

While long-term trend lines often reflect major price moves, short-term lines are drawn on price moves within a range of 10 to 20 candles.

For a short-term trend line, 2 major swing points or a smooth price move are enough.

If it's an upward move, we draw the trend line connecting the candle lows; if it's a downward move, we connect the candle highs.

The trading logic here is completely different. We do not aim to trade bounces off these lines.

Instead, we are only interested in their breakouts. Use these breakouts as entry triggers to catch potential moves.

Uptrend – higher highs and higher lows. Connect at least 3 lows for a long-term support line. Short-term lines on pullbacks give buy signals on breakouts.

Downtrend – lower highs and lower lows. Connect at least 3 highs for a long-term resistance line. Short-term lines on pullbacks give sell signals on a downside breakout.

So, you've learned how to draw these trend lines in different trends. But that's the easy part. The hard part is actually trading them.

Typical Mistake and Filter for Important Levels

When new traders start using trend lines, they often repeat the same mistake over and over, and you might be doing it too.

In a downtrend, you see a strong pullback to the line and buy, expecting an upward breakout, but price goes lower and hits your stop loss.

After the loss, you trust the line again and sell on the next pullback, but price breaks the line upwards – another loss.

The problem is not with the lines themselves, but with the lack of a confluence filter – a breakout of key levels. These are zones of recent bounces (short-term support/resistance) that filter out false signals. To solve this problem, let's look at 3 trading setups using them.

3 Trading Strategies

Stop guessing where price will go! Below we break down 3 proven trend line strategies that will help you enter the market consciously.

1. How not to miss a Bounce.
2. How to trade Pullbacks when there's no clear trend.
3. How to catch a Breakout and profit from a trend change.

Bounce off the Trend Line

A bounce off the trend line is the main setup for entering healthy trends at a fair price. The logic is simple. When price is in a strong move, it will eventually pull back to that trend line and bounce.

The goal is to identify these touches and enter the market expecting that bounce, allowing you to capture the next impulse move with a tight stop loss.

Here is an example. On the chart below you see an uptrend in price. Price is forming higher highs and higher lows. We draw a trend line connecting these 3 swing lows. When price pulls back to the trend line again, we look at the price action to understand whether price will bounce or break the line. As expected, price pulls back and touches the line. At this point, our task is to look at the left side of the chart and identify a few key levels where price reversed earlier.

In addition to horizontal levels, Fibonacci levels are the ideal filter here – their coincidence with the trend line creates a confluence zone.

Here is a key level above the current price. Price met resistance three times before finally breaking above it. Then price recently found support at the same level before breaking below it. Here the purple block is a support/resistance zone. Previously it prevented price from rising, now it's preventing it from falling. If the trend line holds and buyers want to push price higher, they must break this level.

If that happens, the bounce trade off the trend line will be successful.

Next, we also notice a key level just below the current price. Price previously found support at this level. Now, if price breaks this trend line downwards, it must also break this key level.

If that happens, it could be a successful trend line breakout.

On the next candle, price gives a big green candle. However, it is still between the 2 key levels. So we do not open a trade. A few candles later, price finally breaks above this key level with this green candle. This confirms that price found support at the trend line and is ready to move up. This is a successful bounce trade.

So, we enter a buy on the close of this candle. Place your stop loss below this key level, and set your target with a risk/reward ratio of 2 to 1. In the end, price went up and reached our targets on this trade.

Example of a sell trade below. Price was in a downtrend, forming lower highs and lower lows. We notice this downtrend and draw a line connecting the lower highs. When price pulls back to the line again, we start looking for key levels near the price. We notice a level where price previously found support before breaking down. During this pullback, price found support at this level for the second time. This means it is an important key level. If price is to bounce off this trend line, it will have to break this level downwards.

Similarly, above we mark a level where price recently met resistance. If price breaks the trend line and the resistance level upwards, we will consider that a successful breakout trade. A few candles later, price breaks the support level downwards. This is a signal that price met resistance at the trend line and is likely to bounce off it.

So, we enter a sell on the close of the candle. Place your stop loss above the support level, and set your target with a risk/reward ratio of 2 to 1. This trade also yields a profit.

Pullbacks to the Trend Line

The pullback to the trend line strategy is designed for entering a strong trend after a retracement. Instead of waiting for a bounce, we draw a short-term trend line along the pullback itself. Our goal is to catch the moment when price breaks this line in the direction of the main trend, signaling that the pullback is over and a fresh trend move is beginning.

Here is an example. Below we see that price was in an uptrend, forming higher highs and lows. But we don't have 3 consecutive swing points to draw a trend line.

Nevertheless, we can use short-term trend lines to trade this trend. Just wait for price to make a pullback.

As soon as you notice a pullback, draw a trend line connecting the candle highs. Our expectation is quite simple: we expect the uptrend to continue. Therefore, when price breaks this short-term line, it will indicate that the next upward move is about to begin!

Additionally, draw a key resistance level (price touched it twice, yellow arrows). Wait for the trend line breakout, then the level breakout – that is the confirmation. Enter on the close of the candle that breaks the level. Stop loss below the key level, target with a 2:1 risk/reward. The trade ends up profitable, as shown below:

On the chart below, price begins a downtrend. We see lower highs and lower lows. However, we don't have 3 consecutive swing highs to draw a line. So we just watch the price action for now.

Then we notice a pullback and draw a short-term trend line connecting the lows. We expect the downtrend to continue. Therefore, a break below the line could be a good selling opportunity. We also mark a key level because it has repeatedly provided support to price.

If the downtrend is to continue, price must break below the trend line and the key level. Our entry occurs on this candle when price closes below the support level, simultaneously breaking the trend line.

This indicates that the pullback is over and price is ready for another downward move. We enter a sell on the close of the candle and place a stop loss above the key level. We set a target with a 2 to 1 risk/reward ratio.

As expected, price moves lower and reaches our targets on this trade.

Trend Line Breakouts

The trend line breakout setup helps catch major trend reversals for maximum profit. The logic is simple. When price breaks a long-term trend line, it indicates that the existing trend is no longer strong and a new trend is about to begin.

Our goal is to identify these breakouts and enter the trade to capture the next trend. This setup often offers a much higher reward than standard pullback or bounce setups.

Here is an example below. We see that price was in a downtrend, forming lower highs and lows. We draw a trend line connecting the lower highs. When price pulls back to the line again, we start identifying key levels.

We draw a key level because price met resistance before breaking upwards. If price is to bounce off the line again, it will have to break this key level downwards. We will look for selling opportunities when that happens.

Similarly, we notice a key level here as well. Price met resistance at this level twice. If price breaks the trend line upwards, we will wait for a break of this level for confirmation of a reversal.

Over the next few candles, we see price break the trend line upwards, and also break the key level. We enter a buy on the close of this candle. Place your stop loss below the key level, and set your target with a 2 to 1 risk/reward ratio, as shown below.

Over time, price goes up and then pulls back to the same key level. It finds support again before eventually reaching our targets. Often, price returns to retest key levels before reversing. So this is also a trading opportunity in itself. If you find this breakout trade risky, waiting for a retest is also a good option.

Here is another example. On the chart below, price was in an uptrend, forming higher highs and lows. We draw a trend line connecting the swing lows. When price pulls back to the line again, we start drawing key levels.

We draw a key level because price recently found support at this level. If price breaks below the trend line and this key level, it will be a successful trend line breakout.

Therefore, this will be a good selling opportunity.

We also notice a key level above, because price recently met resistance. We mark this level as well. Soon after, price breaks the trend line and the key level. This signals that the previous trend is over and price will begin a downtrend.

Therefore, we open a sell on the close of this candle. We place a stop loss above the key level and set a target with a 2 to 1 risk/reward ratio.

We also get a second entry opportunity on a retest before price reaches our targets.

It is important to understand that standard entry methods based on a retest or a breakout+retest of a trend line lead to losses, because price often creates a false breakout, stops out traders on both sides, and reverses.

What Are the Disadvantages of Trend Lines?

Most novice traders draw trend lines incorrectly, and this leads to bad trades. Price falsely breaks levels, and support and resistance zones turn out to be inaccurate.

It is also important to understand that on short timeframes (e.g., 5–15 minutes), lines are noisy and often break due to volatility, while on daily or weekly timeframes they are more reliable.

And finally, lines are based on past data and do not account for news and events that affect the market.

Summary

The bottom line is that trend lines work best when drawn using 3 significant points, using zones rather than thin lines, and not rushing into a breakout entry, waiting for a retest.

You have learned that a trend line is drawn as a diagonal support or resistance level using at least 2 significant points (swing highs/lows), and it is preferable to connect the candle wicks rather than the bodies, keeping the method consistent.

A false breakout of a trend line is characterized by small candles and a lack of follow-through. A real breakout requires large candles and a second confirming structural breakout – a new higher high (in an uptrend) or a new lower low (in a downtrend).

Entering based solely on a trend line is forbidden! Additional confirmations are necessary (key horizontal levels, Fibonacci levels, price patterns), and the line itself often acts as a liquidity zone where traders' stops accumulate.

To visually see which levels have the most stop losses accumulated, professionals use liquidation maps – this helps you avoid becoming fuel for a large player during a false breakout.

We have been trading since 2018 and have tested hundreds of strategies and indicators. The trading section will help you choose a trading system! And if you are not yet confident in your drawing skills, you can observe the trades of experienced players and copy them through copy trading.

Pavel Grachev, specially for bytwork.com.