should we draw a trend line from the shadows or from the closing price of the candlestick?
We can call trend lines the most important chart analysis tool. We also use trendlines to find areas of buying and selling pressure, and they are also one of the most important price action style strategies. But drawing trendlines correctly is very important, because if you can’t draw trendlines from the right points, you won’t be able to find the right entry points.
When drawing trend lines, we must pay attention to both the closing price of the candlesticks and the shadows. Today we will learn when to draw trendlines from shadows and when to draw them from the closing price of candles.
Drawing trend lines from shadows
The most common way to draw trend lines is to draw them from shadows. We can draw trend lines from shadows if the size of the shadows is not too large. As in the following example
Photo by TradingView
In the example above, when we noticed that the market was making higher lows, we connected the first low to the second low with a line and drew an upward trend line, and when the price hits our trend line, it moves up and rises. In this example, since our shadow is not very large, we drew the trend line from the shadow.
Drawing trend lines from closing price of the candlesticks
When do we draw the trend line from the closing price of the candles? When the shadows are very large, instead of drawing the trend line from the tips of the shadows, we draw our trend line from the closing price of the candles.
Photo by TradingView
As you can see in the example above, the market starts to make lower highs, but the first high has a very large shadow and we have drawn the trendline from the closing price of the candlestick, which then breaks it and moves up. Note that your trendline should always have a good shape.
In this article we learned how to draw the correct trend line from the shadows and the closing price of the candlesticks. By drawing the trend line correctly, we can find the most appropriate entry points and make successful trades.
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