There is no perfect way to draw them and it seems that no one can agree on the best way. That’s because everyone has their own unique way of drawing them.
What is the purpose of drawing trend lines?
The purpose of drawing trend lines is to identify where possible reversals will take place. They can also signal that a change in trend may occur.
In a uptrend, draw the line along the lowest points in the trend without letting the line cross through prices. You need at least two touches of the trend line.
That is the proper way to draw a trend line. You can see how the stock found support near the line after we got a least two touches. That would have been a great opportunity to establish a position in the stock.
You can see in this chart of NIFTY, that there was a trend line break but it did not result in a change of trend. Just because a stock breaks that line that you drew, does not mean that all of a sudden the stock is going to tank!
On this chart, you can also see how a stock can often run into resistance near a trend line, if it is broken.
So what do I do if the stock breaks the trend line? You draw another one! Like this…