We have already talked about trends, their determining, recognition - we know that after the right interpretation, the trend in which we find ourselves, we can make the first decisions to enter the market. Today we will talk about advanced trend lines, which are a very interesting extension of already acquired knowledge.
** Advanced trends are divided into: **
1) Range 2) Price channels (trend)
I. The range formation has three trend lines that intersect at one point. In the formation announcing the change of the upward trend to the downward trend in the first phase, the exchange rate increases, and local bottom on the chart determine the support line "a". When this line is broken, the price drops to the point on the "b" line, which is the next support line. After bouncing, the course rises to line "a", which now acts as a resistance line. Another drop stops the price at the point on the "c" line, which is the third and last line of support. From it the course rises to the "b" line as the second resistance line. In the last phase, the graph after rebounding from the "b" pierces the "c" line, which confirms the change of the trend to a downward trend. The earlier the formation is identified, the less losses the investor will bear when closing an open position. Below is an example where we see two reflections on the A line, and the third time it breaks through, then two reflections from the B line and a third fall, etc.
Similarly to the above described, there is an inverted range formation. Here, the trend lines change their character to the opposite. It is a preview of a change in a downward trend to an upward trend. Early recognition allows you to buy items at low prices.
In the example below, we can see exactly how the price reacts to the range we have determined.
Another important thing we need to pay attention to are the angles of the trend line. If the trend speeds up or slows down, the trend lines must be adjusted accordingly, i.e. drawn again, and there are many trends on the market at any time. Below is an example of matching a trend line where:
"A" is a long-term trend line "B" - is a medium-term trend line "C" is a short-term trend line
II. Price channels We will raise a very important issue here, because locating and drawing the right price channel will allow us, just like when setting the trend - to determine the place where the price is and our potential entry into the position. Price channels are a powerful technical analysis tool. This is the area on the chart where the price moves, bounded by lines along local holes and peaks. The basic type of price channels are parallel channels, i.e. those where the lower line bounding the channel (support) is the upper parallel (resistance). We set them starting from drawing the trend line, then copy this line and apply it parallel to the hole / peak, which lies between the tops / holes and is furthest out of them. An example below:
- How do we determine the strength of a channel? And when can we notice that the channel is starting to weaken? *
Well, the channel is strong when it clearly bounces off the "band", while the premise that its strength is weakening is the moment when the price is less and less reaching the upper and lower line delineating the channel. Of course, at the end of the channel, as in the accumulation, the volume counts, i.e. if it is green it will break out from above, while if red it will increase the chances of breaking down. Let's add that the price must also be at the right edges, i.e. breaking - at the top, decrease - at the bottom.
In the chart, we can see how the volume is increasing and the price is approaching the top "band" of the channel. Another argument in favor of the price breaking out of this channel is the fact of ever fuller and higher green candles, which means that the market demand begins to outweigh the supply. Here is another example:
Let's also check what the exit from the channel looks like. The volume increases and the price approaches the bottom of the channel. Similarly as in the examples above, where demand was winning, here we see that supply is beginning to increase, which is a signal for us to exit the channel below:
As we can see from a technical point of view, determining both fans and price channels can be one of several tools that we can use when analyzing a given instrument on the market.