Trend lines give traders an idea about the psychology of the market, especially, the psychology between buyers and sellers, moreover, it allows professional traders to determine whether the market is pessimistic or optimistic.
This technical trading tool is used in different ways, either as support and resistance by drawing them horizontally, or to identify price and time by drawing trend lines vertically. There is no wrong way in using trend lines.
In trending markets, we use simply trend lines to highlight a trend by connecting swing highs or swing lows in price; this way helps us find high probability entry setups in line with the general trend of the market.
See the illustration below:
By connecting the extreme highs, we had a trend line that acted as a resistance level and the formation of the engulfing bar pattern shows a good selling opportunity.
If you used just horizontal support and resistance levels, you will miss this profitable trade.
Learning about how to draw trend lines is never a bad idea, because it is the simplest analytic tool that you can use to analyze financial markets, it works in all markets, whether it’s forex, commodities, futures, or options.
The chart above shows a bullish trend, the trend line acts as a support level, the price action signal that occurred created a great buying opportunity.