A day trader or longer term stock trader may see the prices violate the trendline briefly during the day’s trading. However, when the trade closes in the direction of the original trend, the trader may be left in doubt as to whether or not the trendline was really broken. Looking at the picture below, you can see just such a situation. Note how the prices dipped under the trendline but still closed above the up trendline? Should this line be redrawn?



There’s no steadfast rule to follow in this case. Sometimes it’s best to ignore this minor violation when the rest of the day’s activity proves the original line is valid. Still, a verteran swing or options trader, may want to compromise by drawing a second dotted trendline until it can be determined in time which line is more true. Meanwhile, the veteran day trader may be satisfied to leave his trendline as is.

When we previously discussed support and resistance levels, we learned that support could become resistance and resistance become support once the levels were violated. That principle also applies to trendlines. This means when an up trendline, a support line, is significantly broken it will usually become a resistance line. A down trendline, a resistance line, often becomes a support line once the break is evident. It is a good idea when using a trendline in day trading or swing trading to project that line as far out to the right of the chart as possible.



The above chart shows how a up trendline can switch roles, and become an indicator of the support and resistance levels. See the rising support line become resistance. A support line usually functions as a resistance barrier on subsequent rallies after it has been broken on the downside.



The above example shows how a down trendline becomes a support line once it is broken on the upside.

Andy Swan is co-founder and head trader for DaytradeTeam.com. To get all of Andy's day trading, swing trading, and options trading alerts in real time, subscribe to a one-week, all-inclusive trial membership to DaytradeTeam by clicking here.