How to Draw Trend Lines on a Stock Chart – Like a BOSS

Knowing How to Draw a Stock Chart Trend Line is Critical To Your Success in Stock Trading -Learn How in Our Starter Starter Guide with 5 Examples

Before we start to draw trend lines we need to understand:

What is a Stock Price Trend?

If someone asked you today, “Is the stock market in an uptrend, downtrend or a lateral consolidation”, what would you answer?

Knowing the answer to this key question is important for the stock market or even an individual stock.  Why?

If you buy a stock (go long) in an uptrend you are more likely to make money on it.  There is a simple way to see for yourself if the market is heading upwards or downwards.

First let’s examine what types of trend exist:

Types of stock price trend:

  • Uptrend: The stock or index is moving up, making new highs or higher highs
  • Downtrend: The stock or index is moving downwards making lower lows
  • Sideways consolidation: neither making significant new highs or new lows

There are also time-frames to consider in evaluating a trend, for this we will refer to Charles Dow’s classification in Dow Theory.

Types of Stock Trend Time-Frames:

  • Short Term: Days to weeks
  • Medium Term: Weeks to months
  • Long Term: Months to years

By combining the above terms, you could be specific about the market trend.  For example, you could say the market is in a short-term up-trend, but a long-term down-trend.  But isn’t that contradictory, the market being in both an uptrend and a downtrend at the same time?

Not really it makes perfect sense.

The Following Examples are an excerpt from the Liberated Stock Trader Academy Book and Training Course.  Chapter 7, Section 2.

Drawing trend lines is one of the most important skills of technical analysts, trend lines represent important areas of support and resistance.  Once you have this skill, charts come to life and start to signal their message to you.

Example 1 – 4 Steps to Drawing your First Trend Lines – UpTrends

Soho Primary Uptrend 2009
Soho Primary Uptrend 2009 Trend Lines

TeleChart2000  chart courtesy of Worden Brothers, Inc.

Example 1. Drawing UpTrends

  1. To evaluate an upward trend draw a line joining the highest highs
  2. For the floor of the uptrend draw a line connecting the lowest lows. The price here bounces 3 times off the bottom line but then proceeds higher.
  3. A trend line is drawn to show that price has moved strongly past the previous high this is a BUY Signal at $35.50.
  4. Finally t,he price is exhausted and falls through the bottom resistance line at $51.  This break of the upward support line is a sell signal.

Quick Tip: The more bounces off a trend line the stronger the trend.

Buying and selling based on the trend lines shown here would have bagged you a 49% win.  Alas, life is never that easy and showing this in retrospect does mean we have the benefit of hindsight.

Example 2 – Drawing Support & Resistance Trend Lines

It is very important you practice drawing trend line as much as possible, after a while you will get used to it and it will become second nature.

Here is another example of how to draw trend lines.  This is a chart of Ticker: AAPL Apple Inc. it shows how to draw trend lines in a downward price move and an upward price move.

how to draw trend lines

TeleChart2007  chart courtesy of Worden Brothers, Inc.

Practice drawing trend lines Ticker: AAPL Apple Inc

Notice that the trend line above the price is called resistance and the trend line below price is called support.  When price breaks up through resistance it moves higher, this could potentially be a buy signal.  When the price breaks down through the support trend line it moves lower, this could potentially be a sell signal.

Quick Tip: The longer the trend line is in place or acts as support or resistance, the stronger the trend and the bigger the move when the trend line is broken.

Look again at the chart of Apple Inc.  See how Apple was in a sideways consolidation from 2001 through to 2004. When it eventually broke out of that channel upwards through resistance the stock took off making over 1600% gain.

Chapter 7 of the PRO Training delves deeper into the technical analysis to enable you to make Buy and Sell decisions using trend lines, spot the most important patterns and trends, discusses the important of Price Gaps, Triangles, and Wedges.

Example 3 – How To Draw Trendlines – Video Seminar


Please excuse the sound quality – it was a live broadcast.

Example 4. Drawing Trend Lines to Recognise Stock Chart Patterns

If you cannot draw a Trend-line you should not invest in the stock market!

In this example, we will examine how to look at price movement and use it to evaluate the stock.  

Price is known as the most important indicator and so it should be when it boils down to it the most important thing is the price.

Here we can see a chart of Broadcom (BRCM), one of the darlings of the tech bubble in 2000.

Where will you draw the trend lines?

Take a look at this Stock Chart, where would you draw the Trend Lines?
Take a look at this Stock Chart, where would you draw the Trend Lines?

Take a moment to think about where you would draw the trend lines before you scroll down to the chart where I have drawn them.

Broadcom Chart with Support & Resistance and a Double Bottom Pattern Trendlines

A chart can really come alive when we add trend lines. The graphic below shows BRCM, with trend lines, superimposed.


Follow This Process to Draw the Trend Lines

  1. Starting from left to right we see from mid-April to July, the stock starts to move in a sideways pattern, known as “Channeling”.
  2. The two red lines show the “trading range”; this is the range between which the stock price fluctuates.
  3. The upper line is known as the Ceiling or the “Line Of Resistance”, and the lower the Floor or “Support”. Both lines show where the number of sellers equals that of buyers.
  4. When the stock price falls through the support line it means the trend has changed, and new market impetus has affected the stock. If you owned this stock in April and enjoyed the corresponding price rise this break would be a strong “Sell Signal” to the trained eye.
  5. The stock consequently dropped in 2 days, but also had the good courtesy to rise again over the following month to give anyone slow on the uptake another chance to Sell. It broke through the previous support line, but was not strong enough to make it to the upper ceiling of the channel. If you had not got out this time you would have suffered a punishing 50% loss. Enough to make a grown man weep!
  6. The next significant point to note, is in mid-October, when the stock bounces at about $13, clearly oversold and proceeds to make a very nice looking “Double Bottom” or “W” bottom.
  7. Chartists the world over recognize the double bottom and those that like to buy on Bottoms would have done. This clearly happened as the stock moved up 38% in 3 weeks.

Example 5 – Using Trend-lines to make Buy and Sell Decisions – 4 Steps

So we have seen the Sideways Channel and the W bottom. But how do we know when a stock is going to take off?

The truth is we never really know.

All we can do is make judgments based on what we see. Do not forget we are only buying Stocks of companies that have

  • Excellent Earnings per Share
  • Strong acceleration in the growth of Earning per Share
  • Excellent Revenue growth

So we are in essence giving ourselves a great head start and reducing our overall risk.

4 Step Guide to Using Trend Lines for Buy & Sell Decisions

4 Step Guide to Using Trend Lines for Buy & Sell Decisions
4 Step Guide to Using Trend Lines for Buy & Sell Decisions

4 Steps to Draw the Trend Lines on the Chart

  1. To evaluate an upward trend draw a line joining the highest highs
  2. For the floor of the uptrend draw a line connecting the lowest lows. The price here bounces 3 times of the bottom trendline but then proceeds higher. The more bounces off a trend line the stronger the trend.
  3. A trend line is drawn to show that price has moved strongly past the previous high, this is a BUY Signal at $35.50.
  4. Finally, the price is exhausted and falls through the bottom resistance line at $53.

Buying and selling based on the trend lines, here, would have netted you a tasty 49%.

Alas, life is never that easy, and showing this in retrospect does mean we have the benefit of hindsight. This is why the finest minds of Wall St. have a whole host of other technical indicators that accompany price to enable you to assess trend quality. These will be discussed in other chapters.

Have fun with this knowledge, but do not go investing your hard earned cash yet.

There are still other very important lessons to learn.

The High Quality / High Resolution Liberated Stock Trader Pro Training Course

Do you want the knowledge to invest with confidence?

Buy the Liberated Stock Trader PRO Training Package and receive 16 hours of video lessons and the Liberated Stock Trader Book - fast forward your future.

Guiding you through the maze of stock market investing to give you a uniquely practical and comprehensive knowledge of the 4 Pillars of Success

FUNDAMENTAL ANALYSIS - Learn how to analyze the health of the business climate and how to find great companies using our practical stock screening guide.

TECHNICAL ANALYSIS Chart Reading is not Voodoo, it is science. YOU will gain an incredible understanding of expert charting techniques, covering the most important methods, indicators and tactics, to enable you to time your trades to perfection.

MONEY MANAGEMENT Understand how many stocks to buy, when to buy them, how much to invest and when to sell using expert stop-loss strategies.

STOCK MARKET STRATEGY Develop your own stock market strategy and learn how to create your own winning stock system.

This incredible package includes:

  • The Liberated Stock Trader eBook - Over 200 pages of workbook covering every lesson
  • 16 hours of video lessons for PC, MAC, iPhone, iPad & Android phones

Other Chapters of the Liberated Stock Trader Book are listed below

Chapter 1 – Essential Stock Market Knowledge – Fundamentals

This chapter sets the stage for the two key areas of stock market technical analysis and the fundamental analysis of companies including macro and micro economics

Chapter 2 – What Really Moves Markets - Why do Booms and Busts Occur?

This chapter looks at what REALLY makes the markets move, what causes boom and bust cycles and how to spot them.

Chapter 3 – How do markets move ? - Stock Market Cycles – Business & Economic Cycles – Kondratieff to Kuznets

What are stock market cycles and the cycles of business and economies.  Important information that you need to appreciate as part of your core analysis.

Chapter 4 – Is the Company in great shape – P/E Ratio

Next we move into fundamental analysis and the financial fitness of a company.  All the major indicators and measures are covered.

Chapter 5 – How to find the best stocks

Stock screening means using criteria to short list the kind of stock that you want to purchase.  A vital part of any stock market training

Chapter 6 – Chart Reading made easy - Japanese Candlesticks – Bullish Reversal Patterns

Once you know the business climate, the state of the economy and you have shortlisted the stocks you want to buy.  The next thing to do is the technical analysis.  Even if the company looks great on paper, if the stock price is plummeting you do not want to buy it until it has bottomed out.  This is called catching a falling knife.  This is what chart patterns and technical analysis helps with.

Chapter 7 – Trend Lines and Price Patterns - How to draw trend lines

Here we get into the art of drawing on charts to help you visualize the Supply and Demand on the stock, the direction of the trend and estimate how long the trend will last.  Vital for you to establish buy and sell signals.

Chapter 8 – Chart Indicators are your friends ! – ROC Rate of Change Indicator

Which indicators should you use, there are literally hundreds of stock chart indicators.  Each have a specific use case and application, which should you use?

Chapter 9 – Chart Indicators Volume - The Price Volume Relationship

Volume is a vital indicator along with price.  Both of these you need to understand in granular detail, you will learn everything you need to know.

Chapter 10 - Advanced Stock Charting Techniques Parabolic SAR

Moving to advanced technical analysis we cover indicators such as parabolic SAR and point & figure charts.

Chapter 11 - Sentiment Indicators & Trading the News - How to trade the news

How are the market participants feeling?  Positive, Negative or indifferent.  Consider that 90% of people fail to beat the average market returns, sentiment indicators can be a great contrary indicator.  Lean how to use them to your advantage.

Chapter 12 - Trading Strategy - What type Of Investor are you?

Understanding how you want to invest, how much time you have and your time horizon.  These questions all help you to understand what type of investor you want to be, this then enables you to select the right strategy for you.  Then we move on to building your stock investing system, a critical element to your plan.