How to Draw Trendlines and Channels, and Read a Break

What to connect

An uptrend line connects rising lows, and a downtrend line connects falling highs. An uptrend line is, in effect, the series of 'higher lows' from the trend article summed up in a single line. Rising lows mean that every time price pulled back, someone showed up willing to buy at a higher price than before, and the trendline simply connects the places where those buyers stepped in. The thing to keep in mind is that any two points will always make a line. So the common convention is to give a line meaning only after you have drawn it through two points and price later touches it again and bounces away: a third point. The third touch is later price action confirming a line drawn in advance, so it carries more weight than two points you picked to connect. The order of checks goes like this. First see whether each low is a clear swing low, lower than the bars on either side; then see whether there is enough distance between the two lows; then wait for the third touch. A line through two adjacent bars changes slope sharply with every small move and means almost nothing. The more touches a line collects, the more people watch the same line, but it is also worth remembering that stop orders then cluster just below it, so the move can be larger when it finally breaks.

Wicks or bodies

When connecting lows, there is no set answer to whether you should connect the lows (the wick tips) or the bottoms of the bodies (the lower of the open and close). Drawing through the wicks reflects every place price actually reached, but a single sharp downward wick can change the slope of the line a lot. Drawing through the bodies is less swayed by such outliers, but wicks will often poke out below the line. Wicks often form during a brief rush of stop orders or a moment of thin order books, so it is hard to say much trading actually took place at that price. The end of a body, by contrast, is the price the market accepted when the bar finished, and is read differently for that reason. That is why many people treat the space between the wick line and the body line as a single band, and read price inside that band as still touching the line. Trying to fit a line to the exact tick is a common mistake. A trendline is closer to a tool that shows a rough area than an exact price. What matters is using the same method within one chart, and also when you look at other charts. Switching methods depending on the situation ends up being the same as picking whichever line has the shape you want.

The steeper the line, the harder it is to last

A trendline's slope is the rate of rise that price needs to stay above it. A gentle line leaves price above it even if price rests for a while, but a steep line only holds if price keeps rising at the same pace. That is why steep lines drawn during sharp rallies tend to break quickly. Sharp rallies tend to attract late buyers and short-term traders, and these participants are quick to leave as soon as price pauses, so the line gives way easily. When comparing slopes, it is better not to go by the angle on the screen. Stretching or squeezing the chart horizontally makes the same line look gentle or steep. Instead, ask how many percent per bar the line rises, and you can compare lines regardless of the screen's zoom. Sometimes a steep line breaks, a gentler one is drawn in its place, and the pattern repeats; this can be read less as the trend ending than as the rise slowing down. Conversely, price getting steeper and steeper above a gentle line is a sign of acceleration, but the steep line you draw after that becomes, once again, a line that breaks easily.

Add a parallel line and you have a channel

After drawing an uptrend line, draw one more line with the same slope through the highs that formed in between, and you have a channel. The lower line roughly shows where pullbacks stopped and the upper line where rallies paused, which makes it easier to see where price sits within the channel. In a downtrend, add a line parallel to the line connecting the highs and fit it to the lows. A common mistake when drawing a channel is to connect the upper line separately so that its slope differs from the lower line. The reference is the trendline you drew first; the upper line copies that slope exactly and is fitted to the most prominent high in between. If the two slopes differ, it is no longer a channel but a different shape that widens or narrows, and the narrowing case is covered in the wedge article. A channel whose width stays constant means the rhythm of rising and resting repeats in a similar way, which gives you a reference for seeing whether that rhythm breaks down. A channel with almost no slope is the same as a trading range, a case covered separately in the article on ranging markets. When price more and more often turns down before reaching the upper channel line, some people read it as a sign that the rise is weakening, but there are also cases where price later climbs all the way to the upper line again. Price breaking well above the upper line is read not as weakening but as the rise speeding up.

On a log scale, it becomes a different line

Even when you connect the same two lows, the line changes with the chart's vertical scale. A straight line on a linear scale rises by the same amount at each step, while a straight line on a log scale rises by the same percentage. On a short chart covering a few weeks the difference is small, but on a multi-year chart where price has changed several times over, a line can look broken on only one of the two scales. When you connect two lows in a rising market and extend the line forward, the log-scale line keeps demanding the same percentage rise, so it climbs faster than the linear-scale line and therefore tends to break first. One way to check is this: if price changed by more than double over the chart's period, draw the line on both scales and see whether they reach the same conclusion. If the line broke on only one scale, the break may be an artifact of the scale, so give it less weight. That is why, for trendlines on long-term charts, you should also say which scale they were drawn on. Why this site's Bitcoin Long-Term Indicators tool uses a log chart by default, and how the two scales differ, is explained in detail in the log chart article.

The retest after a break

After a close below an uptrend line, price sometimes climbs back up, touches the underside of the line's extension and gets pushed away. This is called a pullback or a retest. It is read as a line that was acting as support now acting as resistance, the same idea as role reversal in the support and resistance article. A common explanation for why retests happen is that people who did not sell at the break place orders to get out with a smaller loss once price returns near the old level. There are three things to check: whether the retest actually touched the line's extension, whether the bar that touched it closed back below the line, and whether volume during the retest was lower than at the break. Because a trendline's extension rises over time, people often miss that, unlike a retest of a horizontal level, you have to look at where the line is at that moment, not at the same price as before. But sometimes price moves straight away after the break without any retest, and sometimes the retest crosses back over the line and price returns above the trendline. A rule that decides only after seeing a retest pays the price of missing moves that never retest.

A break is not a reversal

A broken trendline means price is no longer following the pace the line assumed. That does not mean it is turning into a downtrend. Price may move sideways with only the slope flattening out, or it may rest for a while and then go on in the same direction. By the standard in the trend article, to say that an uptrend has ended, the structure of highs and lows has to change, for example with a close below the most recent swing low. That is why many people split things into two stages: a trendline break as the stage where they pay closer attention, and a change in structure as the stage where they reassess. After a break, they mark the price of the most recent swing low and then check, in order, whether that price is broken on a close and whether the next bounce fails to clear the previous high. A common mistake is to conclude from a trendline break alone that the rise is over. Steep lines in particular are easy to break to begin with, as shown above, so the break by itself tells you little. Trendline breaks get attention because they often appear before a change in structure, but precisely because they come first, many of them never lead to one.

Limits: same chart, different lines

Trendlines are among the most subjective tools in chart analysis. Depending on which low you start from, whether you use wicks or bodies, and which scale and timeframe you draw on, different people draw different lines on the same chart. On top of that, it is easy to find a line that fits a past chart well, so whoever drew it tends to feel the line is more powerful than it really is. Lines that did not work get erased, and only the ones that worked stay in memory. Deciding your drawing rules first, writing them down and drawing only by those rules reduces this illusion. Methods that find price levels by rule, such as the Support & Resistance Finder, came about for the same reason. Levels found automatically are not perfectly objective either, because a person still sets things like how many bars define a swing low and how many touches count as meaningful. The difference from hand-drawn lines is that when the rules are public, anyone who runs them gets the same result, and you can go back and check how the rule would have done on past charts.

How it looks different in crypto and stocks

Crypto trades 24 hours a day without a break, so there are no gaps between bars; highs and lows form on continuous prices, and trendlines tend to run relatively smoothly. Stocks absorb news from after the regular session all at once at the next day's open, so gaps are common, and when price gaps over a line, the chart simply has no scene where price 'touched the line and bounced.' Stocks sensitive to overseas chip news, such as Samsung Electronics and SK hynix, often show the overnight move in US markets as a gap the next day, so it helps to decide in advance whether a day that opens below the line counts as a break or whether you wait for the close. Korean stocks have a daily price limit, so a sharp move is sometimes spread across several days, while US stocks have no daily price limit on individual names, so gap sizes vary more. Volatility differs too. Crypto moves more over the same period, so wicks tend to be longer, and the gap between a wick-based line and a body-based line tends to be wider than in stocks. A US index, being a basket of many stocks, tends to swing less than a single large tech stock, so even a line with the same slope is shaken less by wicks.

A practical checklist

When you look at a trendline on a live chart, be especially careful with the bar still in progress. The low and the close keep changing until the bar finishes, so price that sits below the line now may be back above it at the close, leaving only a lower wick. Most of the flipping between 'it broke' and 'it didn't' as the screen refreshes comes from this. The steps below are all based on closed bars.

• Decide the timeframe and the vertical scale (linear or log) first, and write them down
• Pick either wicks or bodies, and do not switch within the same chart
• Draw the line through two clear swing lows (highs for a downtrend line) and wait for a third touch
• Judge a break only on the close of a closed bar; just mark a break in a bar still in progress
• After a break, check in order for a retest of the extension and a close below the most recent swing low