What is a trend line. How to build a trend line. Polynomial trend line

Most traders use the trend line to make trading decisions. This makes it the main, and most importantly, a working tool in technical analysis. Based on this, it can be emphasized that the profit or loss in a particular transaction partially depends on the correctness of its construction.

Line drawing

In order to answer the question of how to build a trend line, you must follow a certain algorithm:

1. First you need to draw a graph, on it you need to place indicators, which are called TD-points. Through them, TD-lines will pass. It is also important to know about the reference price maximum and minimum.
2. The trend line should not be built from left to right, as today's price dynamics are much more important than the past. It is drawn only from right to left, to place the most relevant price indicators on the right side.
3. Through the reference price maximum, a bar is indicated that exceeds the highest prices that are front and back, and bearish lines are drawn at the very end.
4. It is important to consistently formulate two main points through which the line will be drawn, then they will need to be marked on the chart, and then start connecting the indicators.
5. In order to understand whether all actions are correctly performed, it is necessary to check several parameters. The reference price minimum should be lower than the closing price for the previous several bars. But with all this, the maximum must necessarily exceed the closing price at the previous two stages.
6. The closing price of the next point for the main price minimum should be higher than the calculated value of the growth rate of the trend line. For maximum, this value should be lower than the calculated value of the fall of such a line.

According to all the above criteria, you don’t have to think about how to build a trend line and get the most correct and accurate first-order indicators. Using the tips presented above, you can try your hand at the foreign exchange market.

Building Rules

In order for the construction of the trend line to be successful, it is necessary to use several rules:

• The angle of inclination is considered important. The steeper it is, the less reliable the original deal.
• The best option is to build a line at two points. If you set three or more, then the reliability of the entire schedule is slightly reduced.
• No need to try to build a straight line in any conditions. If you can’t draw it, then most likely the trend is completely absent. From this it follows that the original instrument is completely unsuitable for use in these market conditions.

Ascending line

Its main difference is that its right end is located above the left. If you carefully look at the chart, the beginning will be placed in the lower left corner, and the end - in the upper right. With all this, if you do not break through, it can move to infinity.
An upward trend line shows how stable demand growth has been formed today, despite rising prices, which will provoke further dynamics. There are more buyers than sellers.

Descending lines

The main difference compared to the ascending line is that the left end will be higher than the right, namely: the beginning is in the upper left corner, and the ending is in the lower right. As in the previous case, without breaking, it will in the same way go to infinity.

A downtrend indicates that supply is starting to rise today, as a result of which asset prices are rapidly falling. At the same time, the market is full of sellers, not buyers.

Polynomial line

In the case of an unstable state of the price chart, another decrease and increase in indicators, a polynomial trend line is used. In such situations, it is considered the most accurate than ordinary. To calculate it, average peak price indices are needed to determine the so-called confidence interval.

The trend line is characterized by the degree of the polynomial (the number of maximum and minimum values ​​of the graph). The main difference between such a line and a simple trend line is that it is not a straight line, or rather, a smooth curve. In order to build a curve, you can use algebraic calculations.

This line is a graph that describes the equation:

y = a0xn + a1xn-1 + ... + an-1x + an.

This formula will be very useful for analyzing large amounts of data with unstable values. The degree of the polynomial can be determined by the number of extrema (minima and maxima) of the curve. A polynomial of the second degree is described by only one of the corresponding indicators. For the third degree, you must have two or one extremum. When calculating the indicator ai (i = 0,1, ..., n), the so-called least squares method is used, according to which the most probable indicators of the necessary coefficients can be determined.

Line data of high importance

1. Time scale. The line will be built at a higher scale, the more significant it is. That is, the trend line, the graph of which is built in the afternoon, will indicate a more stable and long-term trend than during the hourly period.
2. Duration The longer the line, the more reliable it is. Because it indicates a longer period of time.
3. The number of touches. The more times the price touched the line, the more stable the trend will become. A line that she touched three or more times is more viable to arrive than one that has two touches.
4. Tilt angle. The steeper the angle of inclination between the horizontal and the line on which it is built, the stronger the movement of the trend. If it will pass at a large angle, then this shows the active impulses of movement. When the lines will form hollow, this may indicate that the trend is quite weak and builds, as a rule, a correctional wave.

Rules for using the trend line

Once the truth of the line has been established, you can start trading. In order for the calculation of the trend line to be successful, it must be taken into account that if it is in development, it will try to continue this movement. From the previously indicated, it can be concluded that when you set the necessary pace of trends and place the line at the required angle in the future development, the trend will be unchanged. These actions help determine the extreme points of the corrective phases and identify potential trend changes in a timely manner.

Recommendations for building

In order to determine how to add a trend line, it is necessary to take into account the main errors and recommendations when building:

1. The line must be drawn from the outside of quotes at highs and lows. If we compare it with the mathematical line, which is laid in the middle, then the trader serves more to fulfill the role of visual support, rather than the main indicator of algebraic calculations.
2. The ascending line should always be below, and the descending line above. By following such recommendations, you can protect yourself from trading contrary to the trend.
3. There should not be intersections with quotes in the recent past. Traders do not perceive such a line, they do not attach any importance to it, therefore, as a rule, it does not work.
4. It is impossible to engage in construction according to the initial price.A very common mistake is the rush of beginners to build a trend without a formed bottom or top.

Factors That Affect Trend Line Quality

1. Slope is a rather subjective concept, since when the timeframe changes, it will change, and measuring the angle is an unrealistic task. But in this case, if it is too cool and you can pay attention to the fact that the price does not maintain the set pace, it is best to remove it from the chart. Also, a very gentle slope is not needed, since such a trend can simply be compared with a flat.
2. Timeframe. We must not forget that the higher it is, the better for trading.
3. The number of contacts of the price with the line. This is one of the strongest signals in which the chance of trend stability is most likely to be positive. It can also be noted that the more touches there are, the trend will become stronger. But we must not forget that each subsequent impact begins to bring trade closer to its end.
   If the user adheres to these simple recommendations, you can be sure that the construction of the trend line was successful, it will really work.

The significance of the trend line

There are different types of trend lines, but before you start using the line you have chosen, you need to understand what really determines their value. This concept in itself may contain a double meaning. The significance of the line is characterized, on the one hand, by its service life, and on the other, by the number of checks of its truth. For example, we can assume that it withstands seven checks, which confirm its veracity.

Then, if you compare with the line to which the price touched only three times, it will be more significant than with a big touch. At the same time, the line that existed for 9 months than the one that appeared about 9 weeks ago will be considered the most important. Confidence in the trend and the possibility of earning directly depend on the significance indicator.

Trading strategy on trend lines

In order to trade according to a strategy that is based on the use of a trend line, it is necessary to build it using a trading interval, just as it is done on large platforms. If the trend movement coincides on all charts and it is the same in nature, then this can be considered as a signal for opening an order.

For bullish trades, pending buy orders must be used, which are 5 points higher from the line. Breakdown of the price channel can only be carried out by opening a trading position and triggering an order. The reverse process can be organized only with a bearish trend, in which pending order you need to set 5 points below the original line. From the above it can be concluded that using the strategy is a fairly simple task and easy to learn, and also quite affordable for raising capital.

Trend lines on the price range of the day

The used trend line shows on the chart a large amount of information for the trader, they need to be built above or under the candles, this will depend on the direction of the trend. At the same time, they should fully indicate to all price ranges today. Although there are traders who connect only closing prices during construction, which is not very correct. Of course, this mark is considered very important, but throughout the day of trading, it still remains only part of the dynamics of the whole process. Therefore, it is best to build lines based on the range of vibrations that occurred throughout the day.