Master the art of drawing and trading trendlines for precise entries and exits
A trendline is a straight line that connects two or more price points and extends into the future. It's one of the most powerful yet simple tools in technical analysis.
Trendlines work because they represent areas where buyers or sellers have repeatedly stepped in. When price approaches a trendline, traders expect the same behavior to repeat, creating a self-fulfilling prophecy.
Psychology: "If price bounced here 3 times before, it will probably bounce here again."
Reality: Millions of traders watching the same levels creates real support/resistance.
Connects a series of higher lows. Drawn below price action. Acts as dynamic support where buyers step in.
Bullish SignalConnects a series of lower highs. Drawn above price action. Acts as dynamic resistance where sellers step in.
Bearish SignalDrawing trendlines seems simple, but 99% of beginners draw them wrong. Here's the professional way:
The most profitable trendline strategy: buy the bounce in uptrends, sell the bounce in downtrends.
Draw a valid trendline with at least 3 touches. Make sure it's respected multiple times.
Be patient. Don't chase. Wait for price to pull back to the trendline. This is your entry zone.
Wait for a bullish candle (green) that closes near its high, showing buyers are stepping in at the trendline.
Buy calls when the confirmation candle closes. Set your stop loss just below the trendline (5-10% below).
Setup: TSLA in strong uptrend, valid trendline with 4 touches over 2 weeks
Entry signal: Price pulls back to trendline at $240, forms bullish engulfing candle
Trade: Buy $245 calls expiring in 5 days at $3.20 per contract
Stop loss: If TSLA closes below $236 (below trendline)
Target: Next resistance at $255 (based on previous high)
Outcome: TSLA bounces to $252 in 3 days → calls worth $7.50 → +134% gain
When a trendline breaks, it signals a potential trend reversal. This is where massive moves happen.
1. The Break: Price breaks through the trendline with strong volume and momentum
2. The Retest: Price pulls back to test the trendline from the other side (old support becomes new resistance)
3. The Rejection: Price gets rejected at the trendline, confirming the break
4. The Entry: Enter when price rejects the retest → buy puts (if broke uptrend) or calls (if broke downtrend)
Win rate: 70-80% when executed properly with confirmation
Setup: SPY in uptrend for 3 weeks, trendline at $445 gets broken down to $440
Break signal: Large red candle with high volume breaks below trendline
Retest: Next day, SPY rallies back to $444 (the old trendline) and gets rejected
Trade: Buy $440 puts expiring in 1 week at $2.80 when rejection confirmed
Stop loss: If SPY closes back above $446 (above old trendline)
Target: $432 (next support level)
Outcome: SPY drops to $434 in 4 days → puts worth $8.20 → +192% gain
Knowing when to exit is just as important as knowing when to enter. Trendlines give you objective exit signals.
Exit when price hits the opposite trendline (resistance in uptrend, support in downtrend).
Exit immediately when your trendline breaks against your position. This protects you from reversals.
Options have expiration dates. Set time-based rules:
Exit at 3:00pm ET regardless of profit/loss if no movement. Theta decay accelerates in final hour.
Exit by 2:00pm on expiration day. Don't hold through final hours hoping for miracles.
Can hold through minor trendline touches. Exit only on confirmed breaks or target hit.
Forcing a trendline to exist when it doesn't. You want to be bullish, so you draw a questionable uptrend line.
Fix: Be objective. If you have to force it, skip the trade. Only trade obvious, clear trendlines.
Price touches trendline, you immediately buy calls. Then price breaks through and you lose.
Fix: Wait for a confirmation candle (bullish close) before entering. Patience = profits.
Trendlines only work in trending markets. In choppy/sideways action, they give false signals constantly.
Fix: Only draw trendlines when there's a clear trend (higher highs + higher lows, or lower highs + lower lows).
Price bounces off trendline but volume is low → weak bounce, likely to fail.
Fix: Confirm trendline bounces with volume spikes. High volume = real buying/selling pressure.
Markets are dynamic. A trendline that worked last week might need adjustment this week.
Fix: Redraw trendlines weekly. Use the most recent 3+ touches for the most current trend.
Draw two parallel trendlines - one connecting lows (support), one connecting highs (resistance). Trade bounces between them.
Draw trendlines on multiple timeframes (daily + 4-hour + 1-hour) and look for confluence.
Daily chart: Uptrend line at $148
4-hour chart: Uptrend line at $148.50
1-hour chart: Uptrend line at $147.80
Confluence zone: $147.80 - $148.50 = HIGH PROBABILITY bounce zone
Strategy: Buy calls with confidence when price enters this zone with confirmation
The ultimate high-probability setup: trendline coinciding with a major support/resistance level.
When all three align, the bounce probability is extremely high. These are the setups professionals wait for.
| Scenario | Action | Entry Signal | Stop Loss |
|---|---|---|---|
| Uptrend bounce | Buy calls | Bullish candle at trendline | 5-10% below trendline |
| Downtrend bounce | Buy puts | Bearish candle at trendline | 5-10% above trendline |
| Uptrend break | Buy puts on retest | Rejection at old support | Above old trendline |
| Downtrend break | Buy calls on retest | Rejection at old resistance | Below old trendline |
| Channel top | Take profit / buy puts | Price touches resistance line | Above resistance |
| Channel bottom | Take profit / buy calls | Price touches support line | Below support |