How to Draw Trendlines and Trade Channels: Touch, Close, Hold
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The classic trading books, one simple drawing method, and the one rule they all agree on
Published: 17 October 2026 · Last updated: 17 October 2026 · By Spencer Li, CFTe
Open any daily chart of a stock in a clear uptrend. Find two higher lows, a few weeks apart, and connect them with a straight line. Extend the line to the right. That is a trendline.
The hard part is everything after that. Which lows count, when is a line broken, and what do you do when it is? Here is the short answer. Draw the line through the lows that price has actually touched, and the more touches the better. Judge a break by the close, never by a wick that pokes through during the day. Then wait to see whether the break holds before you act on it.
The sections below cover each step, how channels work, and where the classic books disagree with each other.
What is a trendline, and why does it work?
A trendline joins the lows in an uptrend, or the highs in a downtrend. It shows the angle at which buyers have been willing to step in.
Edwards and Magee, whose book is still the classic on chart patterns, observed that “nearly all Minor and most Intermediate Trends follow nearly straight lines.” They also admitted they did not know why prices so often pull back to the line before carrying on. In their words: “NO ONE KNOWS WHY.”
One likely reason is less mysterious. Plenty of traders draw the same obvious line and place their orders near it, so a line that thousands of people watch ends up mattering because of all the orders sitting around it. It keeps working for as long as they keep watching.
How do you draw a trendline correctly?
Here are the drawing rules most of the classic books share.
- Use at least two touches to draw it and a third to trust it. The more times price has touched the line and turned, the more it matters. Touches count for more than length.
- Never draw the line through price. If you have to cut through candles to make it fit, it is the wrong line. Adjust it or drop it.
- Expect the flatter line to last longer. A very steep line breaks sooner, and when it does, the trend tends to pause and drift sideways for a while, whereas a gentler line can carry a trend for many months.
- Use log scale for long, strong trends. On a chart covering years, a stock that doubled several times will curve away from a straight line on a normal scale.
- Draw on the daily or weekly chart. Lines on short intraday charts get broken all the time and mean far less.
That fourth rule trips up a lot of people. A trader asked on Reddit, “Trendlines on log charts or normal charts?” Their line had held on a normal chart and broken on a log chart, and they wrote, “Now this makes me question my entire thought process!” It is a fair reaction. For a few months of data, the scale barely matters. Over several years, Edwards and Magee noted the gap “may become MARKED,” and most of the books prefer log scale for long trends.
When is a trendline really broken?
This is where the books disagree, and it is worth seeing exactly how.
| Book | What counts as a real break |
| Edwards and Magee | A close beyond the line “by a margin equal to about 3% OF THE STOCK’S PRICE” |
| John Murphy | 3% for major long-term lines, 1% for shorter ones, plus a two-day rule |
| Martin Pring | The 3% rule is “useless intraday”. A valid breakout “should hold for several periods” |
| Singapore Polytechnic course text | “a penetration has to last for more than two (or three) days” |
| Al Brooks | Most breakouts fail, so the first break is often a trap |
Do note what they all agree on. Every one of them wants more than a quick poke through the line during the day. A close beyond the line counts for more than a wick, and a break that holds for a few days counts for more than a single close.
So a sensible rule is to judge on the daily close, and then wait for the hold. Which of the filters is best is still an open question, because the books argue for their own filters with examples rather than with counted results. If you want to see why so many breaks fail, our post on false breakouts goes through how to spot them.
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What should you do when a trendline breaks?
Usually, nothing yet. Pring wrote that “Whenever a trendline is violated, the odds strongly favor a change in trend.” But a change in trend can mean a pause or a sideways range just as easily as a reversal.
The thing to watch for is the retest. After a clean break, price often comes back to the broken line from the other side. If an old uptrend line now acts as a ceiling and price turns away from it, that is a much stronger signal than the break itself. Our post on how resistance becomes support explains why old lines flip their role.
And if price breaks the line, then closes back above it within a bar or two, treat that as a failed break. The trend you thought had ended is often still alive.
The break of a long-term trendline, one that has held for many months, is rare. It is one of the strongest reversal clues on a chart, and even then the retest is worth waiting for.
Edwards and Magee added one useful warning. “In cases of speculative BLOW-OFF, TRENDLINES ARE OF LITTLE USE.” When a stock goes nearly vertical, there is no sensible line to draw, so do not force one.
How do you draw and trade a channel?
A channel is just a trendline with a parallel partner. In an uptrend, draw the trendline under the lows. Then copy it and move the copy up so it touches the highs. The upper line is often called the return line.
Here is how traders tend to use one.
- Buy near the lower line, in the direction of the trend. That is where the risk is smallest, because the line is close and the reason for the trade is clear.
- Use the return line as a target. Many traders take some profit when price reaches the upper line of an uptrend channel.
- Be careful with breaks of the return line. Al Brooks, writing about intraday charts, found that a break above the top line of a channel fails within about 5 bars more often than it carries on. A sudden spurt above the channel is more often a sign of a tired trend than the start of a faster one.
Do note that this kind of channel is drawn by hand from price. Keltner channels and other indicator bands are calculated, which is a different tool, covered in our post on channels, bands and overlays. Two common chart patterns are built from channels too. A flag is a short channel sloping against the trend, and a wedge is a channel whose lines are converging.
How do trendlines fit with market structure?
Think of a trendline as a quick sketch of the trend, and market structure as the full picture. A trendline tells you the angle. The sequence of higher highs and higher lows tells you whether the trend is still intact. When both break together, the case is much stronger than when only the line goes.
Market structure trading covers how to read those highs and lows.
Trendlines are among the most useful tools on a chart, as long as you treat them as zones rather than razor-thin lines. Price is not a ruler. A line that price respects within a small margin is doing its job.
So go back to the chart you opened at the start and count the touches on your line. Then look at the last time price broke through it, and ask yourself honestly whether you would have jumped on that break straight away, or waited for the close and the hold. For more on reading price directly, see the guide to price action trading.
FAQ
How do you draw a trendline correctly?
Connect at least two lows in an uptrend, or two highs in a downtrend, without cutting through any candles. A third touch confirms it, and more touches make it stronger.
How many touches make a valid trendline?
Two touches draw it, and a third makes it worth trusting. The classic books agree that the number of touches matters more than the length of the line.
What is the 3% rule for trendline breaks?
It is Edwards and Magee’s filter: a close beyond the line by about 3% of the stock’s price. John Murphy uses 3% for major lines and 1% for shorter ones, and Martin Pring calls the rule useless on intraday charts.
Should trendlines be drawn on log or linear charts?
Use log scale for long, strong trends covering years. For a few months of data, the scale makes little difference.
How do you trade a trend channel?
Buy near the lower line in an uptrend, use the upper line as a profit target, and be wary of breaks above the upper line, which often fail.
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About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with over 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public: every trade since April 2024, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.
Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.
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Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.
