Trendlines are a well known tool among technical analysts. This tools helps us understand the direction of the current price action and then take decisions. Although this tool is important, it often requires experience to plot the right trendline. In this newsletter, we will discuss how to make plotting trendlines objectively on OHLC charts using Market Structures.

The Pivotal points

Trendlines are drawn by connecting demand points (for a bullish trendline) or supply points (for a bearish trendline). These demand and supply points can be objectively defined through a pattern called Market Structure Low (MSL) and Market Structure High (MSH). MSL is a demand pattern where as MSH is a supply pattern. I have explained these patterns in the course How to Trade Candlestick. Do check out the course on The Noiseless Trader platform. MSL and MSH are pivotal points that show demand and supply and form at the turning points of a swing.

Therefore, to draw a bullish trendline, we must simply connect two or more MSL patterns and to draw a bearish trendline, we must connect two or more MSH patterns.

Observe the chart below of COLPAL on Daily TF. The arrows show the MSL patterns marked. Observe the number of times the price took support from the trendline drawn.

But, can this method be used on a timeframe other than Daily? Yes. Observe the chart below of GODREJCP and ELGIEQUIP on Weekly TF. The MSL are shown by arrows. Observe how the price is taking support on higher timeframe as well. When the price comes near the TL on higher timeframe, the trade could explore opportunities on lower timeframes.

Trendlines can act as important support or resistance levels. To draw a trendline, we require at least 2 demand or supply points. When a bullish trendline is breached and the price forms a MSL pattern below the trendline and resumes the bullish trend, we can adjust the trendline with this MSL as the new low of the trendline. It is okay to adjust the trendline like this a few times after plotting it because price can behave differently on different stock or security.

The method of using MSL (Market Structure Low) and MSH (Market Structure High) to understand price trends is explained in detail in the course How to Trade Candlestick. If you are new to technical analysis and have not seen this course yet, it is a good place to begin.

The course is part of the TNT One membership and also covers other helpful topics like candlestick indicators, trend analysis, and common chart patterns. It is a great starting point for anyone who wants to learn how to read price charts with more clarity. If you have not already, do check it out.