Trend line

The simplest drawing in chart work. Two points define the line and every point after them tests it: in an advance it is drawn beneath the sequence of higher lows, in a decline above the sequence of lower highs. What it adds beyond a horizontal level is slope, which is a statement about pace as well as about price, so the level it marks moves further along the axis with every bar that passes.

The drawing conventions differ and the differences are not cosmetic. Some chartists connect the extreme of each swing, taking the wicks; others connect closing prices, on the reasoning that a close is a price the market accepted while a wick is one it rejected. Some require three touches before treating the line as established, holding that two points define any line at all and therefore prove nothing. Some redraw the line on a logarithmic price scale, where a constant percentage rate of change plots as a straight line and a constant money amount does not. Each convention produces a different line on the same chart.

Two things are consistently overstated. A break of a trend line is not a reversal: it says the pace that produced the line has ended, which is equally consistent with the move continuing at a shallower slope, and a fresh line is very often drawn beneath the same advance. And the appearance of precision is an artefact of the drawing, because a line placed to fit the points already on the chart will always appear to have held. Published tests of trend line breaks disagree with one another, largely because they encode different drawing rules, and that disagreement has not resolved.