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The trendline is one of the most versatile tools in crypto asset trading. Investors, like any other pattern recognition trading tool, use trendlines to gauge the worth of their next trading move.
A trendline is a line drawn over pivot highs or under pivot lows to indicate the current price direction. In any time frame, trendlines are a visual representation of support and resistance levels. They depict price direction and speed, as well as patterns during periods of price contraction or expansion. Because technical analysis is based on the assumption that prices trend, trendlines are critical for identifying and confirming trends. There are two types of trendlines:
An ascending trendline is a chart pattern that consists of two or more higher lows/higher highs connected by a straight line. This price pattern is distinguished by higher highs and lower lows.
An ascending trendline is created by drawing a trendline that connects the swing lows (and runs below the chart pattern) and an upper channel line that connects the swing highs (and runs above the chart pattern).
In the crypto asset market, ascending trend lines indicate a bullish momentum. In other words, an ascending trendline indicates buyers are more aggressive than sellers as prices continue to rise. An ascending trendline joining higher lows serves as support and indicates that demand is growing even as prices rise. An ascending trendline joining higher highs also depicts a bullish momentum and forms the resistance line for the rising price. Any price movement above the resistance line indicates further bullish momentum. Conversely, any price movement below the ascending support trendline indicates the cryptocurrency is losing momentum.
A declining wave in a crypto asset is made up of ripples. A basic descending trendline is formed when the tops of these ripples form on or near a downward slanting straight line. It is a bearish pattern formed by connecting two or more highs/lows, each lower than the previous low. This means when a trendline is drawn joining two or more lower lows, we get a descending support trendline. On the other hand, when two or more lower highs are joined together to form a trendline, we get a descending resistance line.
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Descending trend lines are drawn over bearish trending markets to forecast where the price will go if the downtrend persists. Descending trendlines are also used to indicate potential trend reversals. A break above a descending trendline can be interpreted as a bullish signal.
When an asset trades below a descending trendline (formed by joining together two or more lower highs), it is considered a resistance line, and when it trades above the descending trendline formed by joining together lower lows, it is considered support.
Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.