Trend LinesMarkets are always ‘trending’; either up, down or sideways. Believe it or not but markets actually spend most of their time (around 75%) moving sideways or going through consolidation phases. There are many familiar sayings involving the trend, such as: “trade the trend”, “buy low, sell high”, “the trend is your friend”. It is essential for a trader to identify a trend. Trends are identified and confirmed by the use of ‘Trend Lines’. These trend lines connect together peaks and troughs highlighting the psychological floor or ceiling. The longer the time frame that the market continually finds support or resistance on these lines – the stronger the trend is. This is a strong indicator for traders as to which market to enter or remain in, and traders must take note of the length of the trend in order to make such decisions. A trend line should consist of a minimum of 2-3 troughs or peaks to be valid. Troughs and Peaks:
Peaks will always be the high of an Up Bar (higher high and a higher low) or an Outside Bar (higher high and a lower low), whilst Troughs will always be either a Down Bar (lower high and a lower low) or an Outside Bar (higher high and a lower low).
If you are not sure how to identify peaks and troughs I’d suggest that you take a look at the swing chart, since it highlights them by cutting out all the ‘noise’, looking only at price movement.
The following image demonstrates a market giving higher swing highs (peaks) and higher swing lows (troughs). The first time that a trough was broken the trend line was also broken; then the market gave in as sellers brought their prices down, creating lower swing tops (peaks) and lower swing lows (troughs). Later we will discuss in detail the use of Trend Lines trade by trade. Channels:
Markets will also travel through channels. Some traders love these types of trade set ups for two reasons. Some traders like to trade the price movements between the support and resistance lines. When the price falls down to the lower support line the trader will buy into the market. When it gets up to the higher resistance line the trader will ‘sell long’ and then ‘go short’ and profit from the decline back down to the lower support again. These time periods of the channel can last for days, weeks or even months. Other traders love the ‘break outs’ of these sideways channel movements to profit on the longer trending price movements. Channels don’t always occur through horizontal support and resistance lines but also parallel trend lines too.
 
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