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A trendline is a straight line that joins either the tops or bottoms on a price chart. In an uptrend they are drawn through the price bottoms and act as a support level. During a downtrend, a trendline is drawn by connecting the price tops. In this case they act as a resistance level. A break in the trendline indicates a slowdown of the trend or a reversal. |
An example of how to utilize them can be seen in the chart of Intel Corp. [INTC]. Here you see an upward and downward sloping trendline. Notice a break in the upward sloping trendline on April 11, 2000, after which you can see a trend reversal. This break would have been an ideal point to exit your long positions in this stock. |
An upward and downward sloping trendline can be seen in this chart of Intel Corp. [INTC]. A break in the trendline indicates a slowing or reversal of the existing trend. |
Graphic provided by: Window. |
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The stock is presently in a downward trend and it is a matter of waiting for a break in this downward sloping trend before entering a long position. However, if you notice resistance at this trendline, then this would be an ideal point to short the stock. To protect your losses, place a stop half a point above the trendline. |
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