Three factors determine the importance of a trendline:
- the lenght of time it has been intact,
- the number of time it has been tested and
- the steepness or slope of the trendline.
The trendline that has been in effect for three months is more significant than one that has been in effect for three weeks or three days. Also, the trendline that has been successfully tested for ten times is more significant than the one that has been tested only five times.
As the trend progresses, the trendline too progresses with certain
steepness or slope. This steepness or slope of the trendline help
identify
if the trend is either significant or unstable.
In the above figure, when the trendline 2 advances in approximate of 45 degree line, such trendline is more significant. This is because at such a rate price and time are in near perfect balance. Thus such trendline is relatively stable.
When the trendline 1 advances too steep, it indicates that the price are moving foward too quickly. Such rapid rate of ascent is unstable in the long run hence steep trendline bears less significance thus less confidence too.
Similarly when the trendline 3 is nearly flat, it indicates that the trend is too weak.
