Trendlines is a technical analysis tool. Traders often use it to predict the direction in which an investment’s value might move. It also decodes the market volatility and patterns during periods of price contraction along with support and resistance points in any time frame. Connecting a series of crypto trading prices over pivot highs or under pivot lows together on a chart, you can draw trendlines to speculate the market sentiment across spot or futures trading.
Understanding Trendlines
Irrespective of the size of the investment portfolio and investment instrument, it’s important to have a prudent strategy. Decoding the trendlines can help you to maximize the outcomes of your crypto investments, and minimize the risks. The market wind may not be always in your favour, but being a good sailor, you can adjust the sails and reach your financial goals.
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Source: Investopedia
Downward sloping
A downward trendline is a reflection of a high supply of cryptocurrency, i.e., more sellers are willing to sell out their assets and that causes a drop in the value of the asset. There are two mindsets. First, it can be a good time to buy more assets at a lower price. Second, if the trendline maintains a stark slope, adopting a long position could cause loss also. You can go either way with the anticipation of making a profit. Now, much depends upon how long you want to hold the underlying assets and what is your risk appetite.
Upward Trendline
When the trendline maintains an upward movement, it means that the demand for the asset is greater than the supply. More demand means an increase in the value of the underlying asset. If the upward trend continues over an extended period, buying assets could be beneficial. However, when an upward trajectory has a short existence, you should act cautiously.
Finding Support and Resistance
Support and resistance are the pillars of technical analysis. They help you know the entry and exit timings to make use of a volatile scenario and apply the stop-loss mechanism to mitigate risks. Get an accurate idea of support and resistance with trendlines. Easily identify the levels on a chart beyond which the price of an asset will barely move or pause. What will happen when the asset price approaches a major support/resistance level? No one answer can be correct at this point in time. In fact, two possibilities emerge. First, the price will bounce off the trendline and continue in the direction of the prior trend, or it will move through the trendline. The latter indicates that a reversal or weakening of the trend. Accordingly, you can reverse or hold our decision to make a profit or check risk.
Drawing Trendlines
You don’t have to wait for a statistician to draw trendlines. Wondering about the data to use to draw the trendlines? Pick any of the cryptocurrency trading metrics like the open, close, low, and high prices available with you. A Candlestick Chart could be helpful. You do not need to know the values of all the metrics to create a trendline. You can use any one of them over a period to create pivots and then connect them with a freehand.
