What Is a Trendline?

It's one line. Done properly, it carries a surprising amount of a trading plan. Done lazily, it breaks the minute you trade it.

This is for the trader willing to look at enough price history to draw a line that holds. If your trendlines live on the 5-minute chart and break every afternoon... we can fix that.

What makes a trendline worth trading?

It turns structure into something you can see: where price should find support, where it should meet resistance, and when the trend stops behaving like one. Four rules:

• Three distinct touches. Touch, move away, come back, move away, come back. A cluster of candles on one spot is one touch, not three.
• Enough data. About seven days of price behind the line is a good minimum. A line built on 45 minutes of a 5-minute chart is weak. Shorter lines are just less convincing.
• A moderate angle. Lines around 10 to 20 degrees tend to be respected. Past about 30 degrees they're steep, and steep lines break more often because they describe a volatile part of the market.
• A higher timeframe. The higher the timeframe, the more weight the line carries. If you only draw on one, the 12-hour chart is a good compromise.

Trendlines barely factor into Chad's own strategy now. He still teaches them, because traders need to understand how a trendline works.

How do you actually draw a trendline?

In two passes. Rough line on the chart first, then adjust it to the line of best fit, the position that keeps the most touches. A candle that pokes through and comes back is an overextension, not a broken line. Chad's rule for adjusting: "I don't wanna lose two touch points just to gain one."

Draw in neutral colors, too. A bold red line pulls you toward shorts whether the chart agrees or not.

What does a trendline break trade look like?

Two kinds of trade: continuation, where price pulls back to the line and respects it, and reversal, where it breaks. An illustrative reversal:

Dogecoin has a 4-hour uptrend line with four clean touches over about three weeks. Price closes below it at 0.400, rallies back to retest the line from underneath at 0.398, and gets rejected. Support is now resistance. You short at 0.395, on the retest, not the break.

• Invalidation: above the retest high, at 0.410. That is about 3.8%.
• Dollar risk: 1% of a $6,000 account, or $60.
• Size from the stop: $60 divided by 3.8% is about $1,580 of exposure.
• The 1:3 check: the prior swing low at 0.350 is three times the risk away. Passes.
• Leverage last: 2x on isolated margin, about $790 posted.

The target is sized to the line. A 4-hour line breaking supports a 4-hour move; the same break on a 15-minute line wouldn't. That's timeframe imposition, and Chad says it shorter: "The higher the timeframe your trend line, the higher the impact."

How do we use trendlines day to day?

Lines get drawn during top-down analysis, higher timeframes first, and lower-timeframe lines only get traded the way the higher ones allow. Charts stay close to naked: two or three active lines and a level or two, old lines deleted. Trendlines attract liquidity, since so many traders set orders around them, so we wait for a break and retest instead of the first poke through.

Why do most trendlines fail the people who draw them?

Not enough data. Most people draw lines in the right place, right? Just on too little history, usually a low timeframe. A 5-minute line looks valid, a trader shorts it, and it breaks almost immediately.

The other two mistakes are timing. Enter on the break instead of the retest, and the stop usually gets hit when price comes back to test the line, often moments before the real move. Throw a line away after one overextension, and you've binned a level other traders are still watching.

What's the trendline drill?

Mark up five, six, seven different charts on the 12-hour and draw trendlines. Count the touches, check the days, measure the angle. Do it until it's boring.

The full method is in how to read crypto charts and crypto trading strategies. Related terms: market structure, support and resistance and fake out takeout.