Trading Manual: How to Trade Trendlines - Trend is a Friend Until It Bends

One of the basic foundation of technical analysis is that prices move in trends. The corollary to this premise states a trend in motion is more likely to continue until it reverses. So as long as the trend is intact, trendlines could be used as a buying and selling areas.

In the above figure, north side of a trendline marks a buy zone and the south side marks the sell zone.

• In an uptrend, the trend line acts as a support. So whenever the price dips to point 7, 9, 11 a buy position can be initiated.
• In a downtrend, the trend line acts as a resistance. So whenever the price rallies to point 7, 9, 11 a short position can be initiated.

However when trend lines are violated, they send an early sign of change in the existing trend.

In summary, a trend is a friend until it bends. But when the trend lines bend, it is time to liquidate all positions initiated in the direction of previous trend.