1. Correctly identify market trends.

Trends are an extremely important Concept in Technical Analysis. In fact, many tools used in Technical Analysis, including chart patterns, Resistance and Support, moving averages, etc., all have a common goal: to help investors confirm market trends.

A trend is the general direction of the price running of securities, and it is generally divided into three types:

• An upward trend refers to price movements that generally show higher highs and higher lows.

• A downward trend refers to price movements that generally show lower lows and lower highs.

• A sideways trend, commonly known as "no trend," refers to price fluctuations within a limited range.

Investors often use Trendlines to better understand market direction. However, when using Trendlines, it is easy to fall into some misconceptions, leading to unsatisfactory results.

2. How to correctly draw a Trendline?

An ascending Trendline should be drawn below the price movement by connecting two swing lows (the second low should be higher than the first low), acting as a potential Resistance.

A descending Trendline should be drawn above the price movement by connecting two swing highs (the second high should be lower than the first high), acting as a potential Resistance.

However, a Trendline drawn by connecting two price points is considered 'tentative.' To be recognized as 'valid,' the market's general rule of thumb is that it should touch at least three swing highs or lows.

Generally, the more points a Trendline touches, the more significant it becomes.

The slope of a Trendline is related to the strength of the trend. If a very steep Trendline is broken, it indicates that the trend is slowing down, and investors may consider drawing a new, flatter Trendline.

Similarly, if the trend is strengthening, investors may need to draw a new, steeper Trendline to better track the price movement.

Three, how to use Trendlines for Trade?

Trendlines have a wide range of applications; here are some common trading methods.

• Trendline Rebound Trading Method

The Trendline Rebound Trading Method is a momentum trading strategy aimed at leveraging the potential support of trendlines on price.

Assuming the market is in an uptrend, when the price retraces near or touches the ascending trendline and shows potential rebound signals, a Buy consideration can be made.

Rebound signals include some common Candlestick patterns and Technical Indicators.

Generally speaking, the more price points the trendline touches, the higher the success rate of the Trendline Rebound Trading Method.

• Trendline Breakthrough Trading Method

The Trendline Breakthrough Trading Method is a counter-trend trading strategy, as investors bet on a price reversal occurring in the near future.

If the price breaks through a major trendline accompanied by a surge in Volume and significant gaps, it often serves as a major signal of market reversal. However, this phenomenon does not always occur.

In many cases, counter-trend trading may be resisted by some investors. However, we can conditionally turn the so-called counter-trend trading into a type of trend-following trading.

For example, suppose the market is in an uptrend; we can draw a long-term ascending Trendline. However, during a certain period, the price experiences a pullback. Therefore, we can draw a shorter-term descending Trendline. If the price subsequently breaks above this short-term descending Trendline, it is a potential Buy signal.

Through this operation, we have transformed a strategy that appears to be counter-trend in the short term into a strategy that is trend-following in the long term.

• Trendline backtest trading method.

Trendline backtesting refers to a common phenomenon where, after the price breaks the original Trendline, it tests back to the original Trendline before starting a new trend.

If investors bet on a trend reversal right when the Trendline is just broken, this behavior is often aggressive and faces a significant risk. Because many times, the price may briefly break the Trendline during the day but return within the Trendline by the close.

In contrast, a more conservative approach is to wait for the price to backtest the original Trendline before entering a Trade.

For example, if an ascending Trendline is broken, it changes from a potential Resistance to a potential support level. Then, if the price backtests this Resistance and is obstructed from rising, it suggests a greater possibility that the trend may reverse downwards.

This content discusses technical analysis; other methods, including Fundamental Analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected results.

All investments involve risks, including the potential loss of principal, and there is no guarantee that any investment strategy will be successful.