A trendline is a line connecting the top/bottom of a leg with the next higher low, if talking about a move to the upside, respectively with the lower high, if talking about a move to the downside.

This simple concept is exactly the reason why traders all over the world use trendlines, as even the name suggests something important: trendline = the line of a trend. So, unless the trendline it is broken the trend should continue. The trendline is the line of the trend, so if not broken, trend must go on. But such a simple concept gives traders lots of troubles as most of the times it is being wrongly used, interpreted, and drawn.

From my point of view a trendline should not be fixed, but vary according to what price does. For example, if you’re looking at a rising trend, then you should start from the recent low. After price started to rise, wait for the next swing to the downside and draw the trendline only after the recent highs are being taken. Same is valid on the downside. If you are looking at a falling trend, you should start from the recent high, wait for the next swing to come, and after previous lows are being taken, draw the trendline. And this should stay with you until broken. Otherwise, trend still continues and you have no business in looking on the other side of it.

The recording that comes with this sub-chapter deals with both situations, showing you how to effectively look for a swing after a high/low and how a trendline should be drawn. This is a simple, yet extremely useful tool and it should be treated with confidence.

This ends the 4th chapter and we’re heading towards even more serious stuff, Elliott Waves Theory being presented next.