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Trendline trading: how to draw a trend line and when it is broken

InteractiveDraw the trendline yourselfTwo clicks on the real chart and the page tells you whether it is correct: touches, duration, break.Try it →

A real trendline: Apple, 2020 to 2022

Open in the chart
Core concept · rising trend line · 5 touches · broken with the 3% filter
Trendline
Apple: sessions from to · adjusted prices
volumeperiod start 107.976trendline3% filter#1#2#3#4#5break178.270103.825142.892Aug 7, 2020Feb 1, 2021Jul 27, 2021Jan 18, 2022Jul 13, 2022
1st pointSeptember 21, 20202nd pointNovember 2, 2020Touches5BreakMay 9, 2022

In blue the line through the first two lows, the touches numbered, the 3% filter dashed.

5touches in 20 monthsfrom to the break on

What a trendline is made of

Fig. 1 · Anatomy

1st low2nd low, higher: the line is drawn3rd touch: the line is confirmedextension: where the price should find support
  • Two rising lows are enough to draw it.
  • The third touch confirms it: the market is respecting it.
  • Extended forward, it says where the price should find support.

Break, role reversal, fan and channel

Fig. 2 · The falling trendline

falling highs
  • In a downtrend you join the highs, not the lows.
  • The line slopes down and sits above the price.
  • Every return to the line is a point where the decline can resume.

Fig. 3 · The valid break

3% filtertrendlinebelow the line but above the filter: not brokenclose below the filter: broken
  • Dipping below the line during the session is not enough.
  • The close counts, and beyond a filter: 3% of the price.
  • Alternatively: two consecutive closes beyond the line.

Fig. 4 · The role reversal

supportresistancethe price returns to the line, from below
  • While it holds, the line acts as support.
  • Once broken, it switches roles: it becomes resistance.
  • The price often comes back to it from below, and stops there.

Fig. 5 · The fan principle

123the third is broken too: the trend is over
  • Every break forces you to draw a flatter line.
  • The lines all start from the same low, like the ribs of a fan.
  • Once the third is broken, the trend is over.

Fig. 6 · The channel

trendlinechannel line: parallel, on the highs
  • A line parallel to the trendline, resting on the highs.
  • The price swings between the two lines.
  • If it no longer reaches the channel line, the trend is losing strength.

The rules for drawing it

1The trend first

  • a rising line needs rising lows
  • in a downtrend you join the falling highs

$100.19 → $104.29

2The session lows

  • or the closes: but always the same method
  • the line does not bend to make the numbers work

here: the lows

3°

3The third touch

  • with two points you can always draw a line
  • the third says the market sees it

on

2 touches4 touches

4Duration and touches

  • the longer it holds and the more often it is touched, the more it counts
  • a two-week line is worth little

5 touches in 411 sessions

5A filter for the break

  • lines get pierced all the time: below the line is not enough
  • 3% of the price, or two closes in a row

close 4.5% below the line

Deeper dives: support and resistance.

Interactive exerciseYour turn: draw the trendline

Apple, the same sessions: the judge uses the rules on this page
  1. Click a low on the chart: the point snaps to the nearest low on its own.
  2. Click a second low, further right and higher.
  3. Read the verdict: the line is extended, the touches counted and the break looked for.
Click here on the chart: pick the first low

No point yet: move the mouse over the chart, the dashed circle shows the low that will be snapped to.

Where the trendline runs, day by day

The moment

Slope: (104.29 − 100.19) / 30 sessions = 13.670 cents per session.

The trendline runs at$156.37on May 9, 2022
Close$149.34−4.5% from the line
Low$148.78−4.9% from the line
3% filter$151.68below it, the line is broken
$100.19 + 13.670 cents × 411 sessions = $156.37. Close $149.34, below the filter: broken.

Where to go from here

The basics

The other lessons in the «The basics» section

What is technical analysis

  • the study of price and volume to recognise the trend and the levels
  • three premises: price discounts everything, trends, history repeats
  • exercise: uptrend, downtrend or sideways on three real charts

Candlestick chart

  • the four prices of a session: body and shadows
  • green and red, long and short bodies, long shadows, the doji
  • find the candle on a real chart: the judge says yes or no with the numbers

Uptrend: higher highs and higher lows

  • higher highs and higher lows: how to recognize an uptrend
  • swing points, and the two signals that end a trend
  • mark the higher lows yourself on a real chart

Support and resistance

  • the level where the decline stopped, and the one where the rise stopped
  • touches, time and volume: how much a level counts; once broken, it switches roles
  • find the level yourself on a real chart: the judge counts the touches
The Apple chart in the platformwith the drawing tools to draw your own trendlineOpen a free accountcharts, indicators and watchlists without paying anything
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Frequently asked questions

What is a trendline?

A straight line joining the rising lows of an uptrend, or the falling highs of a downtrend. It shows the trend and where the price, as long as the trend holds, finds support.

How many points are needed to draw a trendline?

Two draw it, the third confirms it. The more touches and the longer it lasts, the more the line counts.

When is a trendline considered broken?

When the price closes beyond the line by more than a filter: 3% of the price, or two consecutive closes beyond the line.

Do you use the lows or the closes to draw a trendline?

Usually the session lows in an uptrend and the highs in a downtrend; some use the closes. What matters is always using the same method.

Method and sources

The sources of this page: the books are cited, the text is ours
Source
John J. Murphy, Technical Analysis of the Financial Markets: chapter 4, basic concepts of trend (the trendline and the filters, 4.4.6-4.4.7; the fan, 4.5; the number three, 4.6).
Robert D. Edwards, John Magee, W.H.C. Bassetti, Technical Analysis of Stock Trends, 9th ed.: chapters 14-15 and 29.

The Apple example uses sessions from our archive, adjusted for dividends and corporate actions; the line is verified at every update. The numbered figures are diagrams drawn to explain, not prices. This guide explains how the tools work: it does not contain investment recommendations and promises no returns. Our method · licence · report an error.