The very basis of Technical Analysis is, markets move in trends. This is evident from looking into a chart of any Index or Stock that it reverses direction after making three or four tops or after making three or four bottoms. This phenomena is the basis of trendlines.
If Markets move in trends then it has to follow certain speed until that trend is broken. And that speed line is trendline. Trendlines are ascending or descending lines drawn connecting more than one tops or bottoms. And they are just speed lines, above which the Markets trade until it is broken in the downside or trade below that line until it is broken in the upside.
Trendline is one of the powerful tools of Technical analysis. Drawing it is very simple but it is very valuable in predicting the trend of the Market. A lay man can take decision of buying and selling a stock based on this tool. The markets move in trends based on time frame, like Major trend, minor trend, short term trend, medium term trend and long term trend.
A Market may be in long term bull trend but it may be in downtrend in short term. So, at a time, we can draw many trendlines based on time frames. If you are a long term Investor, then you have to rely on long term trend lines. If you are short term trader then you have to look after the short term trendlines to analyze the Market.
The concept of trendline is that a trend is intact as long as it trades above that trendline. If it
breaks that trendline, then it can be construed as trend reversal.
