Trend line in technical analysis

Trend line can be drawn between two or more price pivot points on charts. In technical analysis trend line is used to find entry and exit point when trading. Trend line is a straight line and used to confirm trend in stock market. Many people call trend line as Dutch line because it was first used in Holland.

Trend line can be like boundary for price movements. Most charting software draw trend line automatically while some charting software enables traders to draw their own trend line.

Six types of trend lines are available.

• ·         Linear Trend line
• ·         Logarithmic Trend line
• ·         Polynomial Trend line
• ·         Power Trend line
• ·         Exponential Trend line
• ·         Moving average Trend line

• Linear Trend line:

Linear trend line can be used if the price data are increasing or decreasing at steady rates. If the plotted price points follow the straight or nearly equal to straight line then you can call it as linear trend line.

 Formula:

                                                Y =m*x +b

Here m = slope (x, y) while b represent the price point.

• Logarithmic Trend Line:

Logarithmic trend line can be used when the rate of changes in price increases or decreases quickly. If the plotted prices increases or decreases quickly and then level out you can use logarithmic trend line.

Formula:

y = (c * LN(x)) + b

c: =INDEX(LINEST(y, LN(x)),1)

b: =INDEX(LINEST(y, LN(x)),1,2)

• Polynomial Trend line:

Polynomial trend line can be used when data fluctuate many times. It is useful for analyzing profit loss over large data.

Formula:

2nd Order Polynomial Trend line

y = (c2 * x^2) + (c1 * x ^1) + b

c2: =INDEX (LINEST(y, x^ {1, 2}), 1)

C1: =INDEX (LINEST(y, x^ {1, 2}), 1, 2)

b = =INDEX (LINEST(y, x^ {1, 2}), 1, 3)

3rd Order Polynomial Trend line

Equation: y = (c3 * x^3) + (c2 * x^2) + (c1 * x^1) + b

c3: =INDEX (LINEST(y, x^ {1, 2, 3}), 1)     

c2: =INDEX (LINEST(y, x^ {1, 2, 3}), 1, 2)

C1: =INDEX (LINEST(y, x^ {1, 2, 3}), 1, 3)

b: =INDEX(LINEST(y, x^{1, 2, 3}), 1, 4)

• Power Trend Line: 

When the price rate increases at specific rate at regular interval, we can use power trend line.

Formula:

y=c*x^ b

c: =EXP(INDEX (LINEST(LN(y), LN(x),,),1, 2))

b: =INDEX (LINEST(LN(y), LN(x),,), 1)

• Exponential Trend Line:

Exponential trend line and power trend lines are similar in shape. Difference between these two is power trend line gets symmetric arc while exponential trend line takes sharp arc at one end. Direction of exponential trend line may be either up or down. You can use exponential tend line when price value increase or decrease rates are constantly increasing.  

Formula:

y = c *e ^ (b * x)

c: =EXP (INDEX (LINEST(LN(y), x), 1, 2))

b: =INDEX (LINEST(LN(y), x), 1)

• Moving Average Trend line:

If the price value fluctuate uneven (up down) we can use moving average trend line. Moving average takes average of specified number of points and uses that average as next point.