Constructing trendlines, breaks, and role reversal

The line is evidence, not decoration

A trendline is treated as one piece of evidence that a price trend may be turning. The working assumption is that trends persist until later evidence shows they have changed.

That assumption only holds if the line is constructed as a testable object. A later break can then support or deny the idea that the prior trend is still in force.

Draw the primary line, then judge a secondary line

A down trendline is constructed by joining a series of declining peaks, usually starting at the first or highest peak and connecting it to the next peak. An up trendline joins a sequence of rising bottoms.

The primary trendline is the first-pass line that joins the earliest extreme swing to the next comparable swing in the same direction. If that earliest extreme is unsustainable, a secondary trendline that skips the highest peak can still be valid when it touches later swings and better describes the underlying trend.

Score trendline significance before you weight a break

Trendline significance is scored with three construction tests. A steeper slope is less sustainable. A longer line makes a penetration more important. More touches or approaches make the line a stronger dynamic support or resistance level.

A violation changes the trend. It does not automatically reverse it

A trendline violation changes the prevailing trend but does not automatically reverse it. The next state can be an opposite move, a sideways range, or a slower continuation.

A close or decisive move through a down trendline is treated as an upside break. A move through an up trendline is treated as a downside break.

A reversal break is a violation read as a change from the prior directional trend into the opposite direction. A consolidation break is a violation read as a slower continuation or a pause rather than a full reversal.

A break that runs against the larger primary trend is read as more likely to precede a reversal than a pause, such as the violation of rising bottoms during a bear-market rally.

When a trendline violation occurs at the same time as a break from a trading range, the combination is treated as stronger reversal evidence because two conditions fire together. That second condition is breakout confirmation: a range boundary used to decide whether the violation is more likely a reversal.

Reuse the broken line

After a trendline is penetrated, role reversal applies. A former rising support line later acts as resistance, and a former falling resistance line later acts as support.

A measured projection can then supply a rough post-break target. Measure the largest distance between price and the trendline and project that distance from the break, without treating the target as certain.