Trend lines are a powerful tool in technical analysis because they visually depict the direction and strength of a market trend, making it easier for traders to identify and follow the prevailing market sentiment. By connecting significant highs or lows on a price chart, trend lines provide a clear and straightforward indication of the trend's trajectory. They help traders determine potential support and resistance levels, where the price might reverse or consolidate. Additionally, trend lines can signal potential breakout or breakdown points, offering valuable insights for entering or exiting trades. Overall, trend lines simplify the decision-making process and enhance the trader's ability to make informed and strategic trading decisions.
Below is an example candlestick chart 5 minute time frame of NIFTY BANK index displaying a volatile price movement. Below observations may be made
- After a downtrend , price reversed sharply up-to 400 points which was momentary lasting for 10 minutes
- Price pulled back sharply from this level back 400 points down
- Many short sellers stop loss would have got hit during this volatile move during the up move and long buyers at top got trapped during the down move
- Those who had a wide stop loss saw the price reversed at the previous trend line acting as resistance and hold their trades
- On the Fibonacci levels , there is a confluence of trendline and the 0.61 fibonacci level resistance adding to trader confidence to continue on short
