In actual trading, many investors often blindly apply various techniques. For example, when the price is running above the rising trend line, they short as soon as the price breaks down below the rising trend line; when the price is below the descending trend line, they go long as soon as the price breaks up above the descending trend line. If trading is conducted according to this logic, wouldn’t the market only consist of bullish and bearish trends? Don’t top and bottom formations become V-shaped reversal patterns?
When the price breaks below the rising trend line or breaks above the descending trend line, it does not mean that the market will reverse; it may also be a temporary pullback or rebound, after which the price continues to follow the original trend.
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Trend lines reflect the direction of market movement and the flow of funds, and they are very simple and easy-to-use technical indicators. Due to their role in supporting and obstructing prices, as well as reflecting market direction, trend lines have important reference value. There is a saying in the field of technical analysis: "A straight ruler conquers the world," which illustrates the significant value of trend lines.
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The neckline is also an important technical indicator; let the chart speak: the price drops and forms a bottom with three low points. Among these three low points, the middle low point is the lowest, while the left and right low points are the next lowest; the bottom formation created by these three low points is called the "head and shoulders bottom" pattern. The left low point is called the left shoulder, the right low point is called the right shoulder, and the middle low point is called the head. By drawing a straight line through the two relative high points in this "head and shoulders bottom" pattern, we obtain the desired neckline for the "head and shoulders bottom" pattern. When the price is below the neckline, the neckline acts as a resistance to the price; when the price breaks above the neckline, we enter to go long; when the price is above the neckline, the neckline acts as support for the price.
