Clicked Gallery

What is a Trendline?

Highlighted from a real earnings story. Explained by Clicked.

Used in a sentence

The Daily Ledger · Markets

The stock has held its rising trendline on every pullback since March, and traders are watching whether the line survives this week.

The reader highlighted one word mid-article. Clicked made the trading term β€œtrendline” easy to understand:

Explained in three depths

Same facts, different vibe β€” Slang mode 😎

The Clicked way

●○○

Overview

A trendline is a straight line drawn on a price chart through two or more rising lows, or two or more falling highs. It shows which way a price has been heading and roughly where it has tended to turn. A stock is in an uptrend when each dip stops higher than the dip before it. Say the dips stopped at $40 in January, $44 in February and $48 in March. A line through those three points rises $4 a month, so in April it sits near $52. Buyers stepped in at each of those three lows, so traders watch whether they step in near $52 as well. The line describes what has already happened and extends it forward. Whether buyers show up again is a separate question.
●○○

Overview

A trendline is the line you draw through a chart's dips, or through its peaks, to see which direction the price is heading and where it's been bouncing. Rising dips mean an uptrend: each pullback bottoms out higher than the one before. Picture a stock whose dips landed at $150, $156 and $162, two weeks apart. Draw a line through them and it climbs $6 every two weeks, which puts it near $168 next time. That's a floor that tilts, and it's where buyers have been showing up. The chart has been walking upstairs, and the line just measures the stairs. It can't tell you if the next stair is there, only where it would be. 😎

A quick take β€” often all you need.

●●○

Detail

A trendline is a straight line drawn through the turning points of a price chart: the rising lows of an uptrend, or the falling highs of a downtrend. In a downtrend each rally peaks lower than the one before it. Take a stock whose rallies peaked at $90, $85 and $80 in three successive weeks. The line through those peaks falls $5 a week, so next week it sits near $75. The line gives a trader two things that "it's falling" does not: a rate, $5 a week, and a level to watch, $75. A flat resistance level marks a price where rallies have stalled before, and this line is the same thing on a slope. People also say "trend line" loosely for any line that shows direction, including a moving average; here it means the straight line drawn through the dips or the peaks. If the stock closes at $78 in a week when the line sits at $75, the line is broken. A break puts the trend in question. The fall may be ending, or the price may slip back under the line a day later, which traders call a fakeout. Two points are enough to draw a line, and traders trust a line more each time the price returns to it and turns there. Which points you join, and whether you draw on a daily or an hourly chart, is a choice, so two traders can draw two different lines on the same stock. Each line is a record of where the price has turned, extended forward.
●●○

Detail

A trendline is the line a trader draws through a chart's turning points: the dips in an uptrend, or the peaks in a downtrend. Peaks that keep getting lower mean a downtrend, and the line through them is a ceiling that tilts down. Say the last three rallies topped out at $30, $27 and $24. The ceiling is dropping $3 a step, so the next rally would run out of steam near $21. Two peaks will give you a line; the third is what gets traders to trust it. Here's the catch: the line is partly your opinion. Draw it through a $31 spike that lasted an hour instead of the $30 close, and you get a different slope, and $21 is no longer the number. Two traders, same stock, two lines. That's why a trendline is a reading, not a rule. When a rally pushes through the ceiling, say a close at $23 in the week the line sits at $21, the downtrend is in doubt, and in doubt is all it means. Maybe over, not "buy now". Plenty of rallies poke through a line on Monday and are back under it by Wednesday. Also: a moving average gets called a "trend line" too, and that one is a curve built from all the prices, not this straight one. A ceiling that tilts tells you the pace of the fall and where to look next, and that's the whole job. 😎

Want more? One click digs deeper.

●●●

Analogy

A trendline is a straight line through the rising lows of a price chart, extended forward to show where the next low would land if the climb continued. Watching the tide come in is the same idea. Each wave runs up the sand and slides back, and each one slides back to a point a little higher than the last. After a few waves you know roughly where the next one will stop, which is why you move your towel before it gets wet. The lows are the points where each wave's backwash stops, and the line through them is the trendline. The tide will turn eventually, and the line cannot say when. One wave that falls short is not the turn, and a price that dips under its trendline for a day may not be either. Where the picture breaks: the tide follows a timetable you can look up, and a price follows none.
Deepest level reached.
●●●

Analogy

A trendline runs straight through a chart's peaks or its dips, and in a downtrend it runs across the peaks. Drop a bouncy ball on a hard floor and watch it: each bounce tops out lower than the one before. Lay a ruler across the tops of the bounces and it slopes down, and that's a downtrend line. The next bounce should peak somewhere under the ruler, and it does, because the ball loses some height every time it hits the floor. Here's where the stock version differs. The ball is losing height to physics, and nothing will make it bounce higher. A stock's rallies peak lower only while buyers keep giving up sooner, and the moment buyers come back, the next rally pokes through the ruler and the line is done. One more gap: the ball's peaks shrink by a share each time, so the tops curve and the ruler is only a rough fit. 😎
Deepest level reached.

Unfamiliar concept? A real-world example makes it click β€” fresh analogies on tap.

AI explanations may contain errors · Not professional advice

Formal definition β€” The same term, explained the usual way

A trendline is a straight line drawn on a price chart that connects two or more significant swing lows (an ascending trendline, read as dynamic support) or two or more significant swing highs (a descending trendline, read as dynamic resistance), and is extended forward in time. An uptrend is conventionally defined by successively higher swing highs and higher swing lows, and a downtrend by the reverse; two parallel trendlines enclosing price action form a channel. Trendlines are discretionary constructions: their placement depends on the chosen timeframe, on whether wicks or closing prices are used, and on which swing points the analyst selects, and their slope on a long-horizon chart differs between linear and logarithmic price scales. A close beyond a trendline is interpreted as a break that places the prevailing trend in question rather than as a reversal signal in itself.

Want Clicked to explain terms like “trendline” directly in your browser β€” including on PDFs?

Add to Chrome β€” Free

50 free Explanations · No credit card required