Trendline Trading: Drawing, Bounces and Breaks

What a Trendline Actually Is

A trendline connects selected swing lows, the bottoms of price dips, or swing highs, the peaks of rallies. Higher lows form an upward line; lower highs form a downward line. Traders use these as possible support or resistance, levels where a fall or rise might pause. Price can cross either line without reversing its longer trend.

Different traders can select different pivots and draw different lines. A popular-looking line does not prove that institutions use it, that it will hold or that it predicts orders.

Two anchor points define a straight line. A later touch can add an observation for review, but it is not a universal confirmation requirement or guarantee of a profitable setup.

How to Draw a Trendline Correctly

Choose a timeframe and define the swing pivots you will use. Connect higher lows for an upward line or lower highs for a downward line. A pivot rule using later candles cannot identify that pivot until those candles exist.

• Record the timeframe and price scale.
• Use a consistent pivot definition.
• State whether anchors use wicks, bodies or closes.
• Keep the original drawing when reviewing a later break.
• Treat a redraw as a changed interpretation rather than rewriting the original setup.

A line can look different on a logarithmic scale or after a changed anchor. Record those choices. Visual neatness alone does not establish reliability.

Two points, a third touch and steepness

StockCharts' ChartSchool puts the usual convention this way: it takes two points to draw a trend line, and the third one confirms the validity. An uptrend line has a positive slope and connects two or more low points. A downtrend line connects high points. The three-touch idea is a rule of thumb, not a statistical test, so treat a third touch as one more observation.

ChartSchool also says that as the steepness of a trend line increases, the validity of the support or resistance level decreases. A very steep line usually reflects a fast move that is hard to sustain, so many traders redraw it at a flatter angle after a break. Redrawing is fine, as long as you keep the original line in your notes and mark the new one as a new interpretation.

Types of Trendlines

An upward line connects selected higher lows; a downward line connects selected lower highs. Horizontal boundaries describe a chosen range. These orientations summarise past prices and do not prove who is in control or how prices will behave before an event.

Adding a parallel line on the opposite side creates a channel. Prices can move outside either boundary; neither line guarantees a fill or a reversal.

Arithmetic and logarithmic charts

On an arithmetic scale, equal vertical distances mean equal rupee changes. On a logarithmic (semi-log) scale, ChartSchool says, incremental values are displayed in percentage terms as they move up the axis. For a long uptrend, a line that fits on the log scale can look too shallow or too steep on the arithmetic scale. Short intraday charts hardly differ between the two, but a multi-year Nifty chart can. Choose one scale for a given study and write it down.

Trendlines and timeframes

A line drawn on a 5-minute chart and a line on a daily chart describe different things. A break of a short-term line may be noise on the higher timeframe. Note the timeframe of every line and, if you use more than one, which line decides your entry. This also stops you from mixing a daily-chart idea with a 5-minute trigger without noticing.

Worked Example: A Nifty Trendline Bounce With Options

In this illustrative example, Nifty is at 22,000 and a rising line drawn from earlier lows passes through 21,950. The assumed position buys a weekly call to illustrate a possible bounce. The prices are made up solely for the arithmetic.

• Illustrative instrument: Nifty weekly 22,100 call.
• Assume premium Rs 80, lot quantity 65 and two lots, giving 130 units.
• Premium outlay is 80 x 130 = Rs 10,400 before charges.
• The assumed trade idea is a bounce from the 21,950 line. It can fail.

In this made-up outcome, assume a later exit is available at premium Rs 140. Gross gain is (140 minus 80) x 130 = Rs 7,800. The premium is assumed independently; a trendline bounce cannot calculate or guarantee it. Fees and taxes still reduce the result.

Trading the Bounce Versus Trading the Break

A bounce rule expects price to remain on the original side of a line. A break rule acts after price moves through it. A retest waits for a later return. These are separate assumptions requiring different entry timing.

Waiting for a completed candle changes the trigger. It cannot eliminate false breaks, and a temporary break does not establish that someone deliberately hunted stops.

A break is a warning, not a verdict

ChartSchool says trend line breaks should not be the final arbiter, but should serve merely as a warning. That fits the approach on this page: a break tells you to review the plan, not to act at once. Look at what else changed, such as the retest of the line, the size of the candle that broke it and whether the move came on a news event.

Made-up example for a break rule: a rising line passes through 21,950. A completed 15-minute candle closes at 21,940, below the line. Your written rule says to act at the open of the next candle, and the assumed fill is 21,935. You set a planned stop 40 points away. On a futures contract with the 65-unit Nifty lot, planned loss per lot is 40 × 65 = ₹2,600 before costs and slippage. The close and the fill differ by 5 points, which is why you record the actual fill and not the level on the chart. Every figure here is invented to show the arithmetic.

Using Trendlines for Stops and Position Sizing

Illustrative futures sizing: assume a Rs 5,000 loss budget and a 25-point planned stop, quantity 65 per lot. Planned loss per lot is 25 x 65 = Rs 1,625; two lots give Rs 3,250 before costs and slippage. A gap or failed exit can exceed the budget.

Trendlines on Weekly and Monthly Option Expiries

As checked in October 2026, Nifty retains weekly options on NSE. Bank Nifty has monthly and quarterly options with no weekly series. Scheduled Nifty weekly expiry is Tuesday and monthly expiry the last Tuesday, shifted to the previous trading day for a holiday.

Expiry choice changes time decay and exposure. A correct directional move can still lose money on an option if it does not cover the premium and costs. Futures also carry leverage and funding risks.

Errors When Drawing and Reviewing Trendlines

• Avoid changing anchors to fit the outcome.
• Separate a line touch from your defined entry trigger.
• Do not assume a completed candle can be traded at its earlier boundary.
• Account for option expiry and premium changes.
• Compare the actual loss with the original planned loss.

A trendline is a way to organise observations. Additional indicators can add context without independently proving the line will hold.

Trendline versus linear regression

A trendline is drawn by a person through chosen swing points. A linear regression line is calculated from every close in a window using least squares, so two people using the same settings get the same line. The first is a judgement that can be argued over, and the second is arithmetic that can be repeated. Our linear regression indicator page shows the maths. Neither predicts what the next bar will do.

What to put in your journal for a trendline trade

• A screenshot or description of the line with the two anchor points and the timeframe.
• Whether the line used wicks, bodies or closes, and the chart scale.
• Your rule: bounce, break or retest, and the exact trigger.
• The actual fill and how far it was from the line.
• Your stop, the planned loss in rupees and the actual loss.
• Whether you moved the line after the trade, and why.

OneTradeJournal is a manual journal where you can log strategy, stop, target, emotions, mistakes and notes for each trade, and review results by strategy afterwards. It does not draw charts, supply market data or send alerts. See also support and resistance and stop-loss orders.

Taxes and Costs You Must Account For

Gross trading gains still need all applicable charges deducted. Use the trade date, actual broker tariff and correct segment rather than a generic per-trade estimate.

Keep records for income-tax reporting and ask a chartered accountant about classification and deductions. Drawing a trendline does not determine tax treatment.

Related reading: false breakouts, sizing, costs.

Sources

• Basic concepts of trend (checked October 2026)
• Current permitted market lots (checked October 2026)
• Equity derivative contract specifications (checked October 2026)
• Bank Nifty contract specifications (checked October 2026)