|  MAR 1996

Trendlines as a Technical Tool by Joe Luisi

NOVICE TRADER Trendlines As A Technical Tool Applying trendlines to charts is a classic form of analysis. Here are some of the basics of using this tool. by Joe Luisi Trendlines, which are one of the most basic techniques in chart analysis, are lines drawn to portray market direction and even project where the market is going. A trendline† connects either a series of highs or a series of lows in a trend. It can represent either support†, as in an uptrend line, or resistance†, as in a downtrend line. (Consolidations are marked by horizontal trendlines.) Trendlines can provide visually oriented traders with an idea of how the market is doing, and they can also pinpoint changes in trend. Just as markets come in various types, so do trendlines, and they can be used in various ways to examine different market situations. Let's take a look. UPTREND LINE The uptrend line is a diagonal line connecting significant lows and indicates when the market is moving higher and making a series of higher lows and higher highs. Figure 1 shows a series of three uptrend lines for the Swiss franc; in this chart, you can see that the franc is moving higher. Using an uptrend line on a long-term basis, we can connect the lows made in December 1994 with the franc's activities in February 1995 and in May 1995. These three points of time - December 1994, February 1995 and May 1995 - represent significant lows. On a longer-term basis, this market is strong; it will move higher as long as this line is not broken. When the market rallies, you can draw another trendline to connect the lows of February and March, and as the market climbs, another uptrend line can be drawn.

by Joe Luisi