How I draw the trendline

Drawing a trendline is like an art – when you draw a trendline reliably it’s a beautiful piece of art. Yes, RELIABLY.

Many traders would have told you that when you draw a trendline or a pattern, you must follow this, this, and that rule. To me, many things in trading is not an answer of right or wrong, but which method is more reliable and tell you the story behind the price movement. Since trading is about probability and risk reward, we need to find a way to draw a trendline that’s reliable and not right or wrong.

If you have seen how I trade the breakout, some of the same concepts will apply here when drawing a trendline.

What is the main reason to draw a trendline?
To identify the trend.
If the price touches the trendline, bounces off the trendline and starts to go further away from the trendline, you can say the trendline is probably reliable and the trend is still intact. Whereas, if the price is reactive to the trendline and decides to break through the trendline, then the market is signaling that the prior trend may have reversed.
Using a trendline allows traders to identify the starting point of a trend change, hence catching the next big move.

How to draw a trendline reliably?
Below are some of the signs I look for when drawing a trendline:
1. At least two touches on the major swing points (other than the starting point)
What do I mean by major swing points?
• The obvious points (I am yet to find a rule for this. If you have a solution, leave a comment below)
• The price needs to move away from the current price
2. What’s the price actions when touching the trendline – is there a congestion and build up of momentum towards the trendline before breaking out? Is there a retest of trendline after breakout of the trendline? Or, does the price pierce through the trendline as if it’s non-existent?
3. The more touches the more reliable
4. Can you draw it as a channel? – if you can, draw it as a channel as it's more reliable than a trendline.
5. Angle of the trendline – anything steeper than 60 degree is not reliable.

Let’s apply the above points to examine the reliability of the trendlines in the chart above
The below trendlines failed point 1 (there was only 1 touch):