Trendlines are used to draw support and resistance levels on a price chart. Traders then use these levels to determine potential buy and sell points. There are primarily two types of trendlines on a price chart: horizontal & diagonal trendlines.
Horizontal trendlines are used to determine levels where there have been price equilibriums in the past. Past price equilibriums correspond to heavily and thus efficiently traded areas that traders may treat as support and resistance. Price equilibriums appear on a chart as horizontally ranging candles.
On the other hand, diagonal trendlines commonly act as support during uptrends on which the price touches before making a new leg higher. They also act as resistance during downtrends. Prices often rise or drop inside a diagonal channel and touching the bottom or top of a diagonal channel can be treated as potential entry and exit points.
You can draw trendlines on the CEX.IO Broker price charts to determine support and resistance levels for yourself, or alternatively, you can use charting websites like Tradingview.
Horizontal trendlines
Horizontal trendlines are flat lines that you draw on a price chart to determine support and resistance levels. When drawing the line, you need to connect past equilibrium prices that align on the same horizontal level. Historical price levels with the largest trading volume and duration typically act as stronger support and resistance when the spot price hits those levels.
Past equilibrium price levels are alternatively called local tops or bottoms which often play out as continuation patterns during an up or downtrend.
Trendline supports
Avalanche (AVAX), a highly popular layer 1 blockchain cryptocurrency was traded at a flat price level from August 2020 until October 2020 (circled in orange in the chart below). Since then, whenever the price of AVAX retraced to that horizontal trendline at around $10 (the blue line), this level has always acted as strong support (green circles), which was followed by a strong rally to the upside.
AVAX/U.S. Dollar daily price chart with the blue horizontal trendline
As another example, $10 played as strong trendline support for CAKE, the native cryptocurrency of a major decentralized exchange, between February and April 2021 (circled in orange in the chart below).
As you can see in the chart below, early 2021’s $10 equilibrium level held as support over and over again until CAKE decisively broke it down in 2022.
The former support has become resistance since then, as the price bounced and came back down from the $10 horizontal trendline in April 2022 (circled in red).
CAKE/U.S. Dollar daily price chart with the horizontal trendline at $10
As you can see in the chart above, losing long-standing support levels can lead to large sell-offs. As most cryptocurrencies are very volatile without much trading history and with only a few equilibrium price points, losing key support can create as high as 90% drawdowns if there are previously no significantly-traded areas on the way down.
Trendline resistances
The Zilliqa/U.S. Dollar chart below illustrates two different trendline resistance samples.
Zilliqa/U.S. Dollar price chart with trendline resistances and supports
The blue horizontal trendline on the chart above played as resistance twice in 2020 (circled in orange), as that level constituted the 2018 bottom and the 2019 top before.
Once Zilliqa passed the trendline resistance at three cents, there was no other resistance until $0.25 (the all-time high price), because in the past, there were no significant price equilibriums or large trading volumes up until that level.
The $0.25 trendline resistance has been so strong that Zilliqa topped at exactly this level in every bull market. On the way down, the former $0.03 resistance acted as support in June 2022 (circled in purple), where Zilliqa had a substantial bounce.
Correlation between Bitcoin and altcoins
You should note that nearly all altcoin prices have historically been correlated to the Bitcoin price. Due to this, where exactly an altcoin hits a resistance or support usually depends on where Bitcoin bottoms or tops on that trading day.
This makes the altcoin/BTC trading pairs equally critical in determining altcoin tops and bottoms. There may be a more significant support or resistance level on an altcoin/BTC price chart, due to which the price may top or bottom slightly below or above a horizontal trendline on the altcoin’s USD price chart.
Zilliqa’s U.S. Dollar price did not exactly touch the $0.03 trendline support in February 2022 before it exploded to the $0.25 resistance, because it had already touched a major support level on the BTC trading pair by then (circled in red in the chart below). That also marked the day when Bitcoin realized its local bottom at $34,000.
Zilliqa/Bitcoin parity chart with the trendline support at 0.0000010
As an alternative example, you can see the Tron/U.S. Dollar and the Tron/Bitcoin charts below.
Tron/U.S. Dollar price chart
Tron/Bitcoin parity chart
Bitcoin tops and bottoms likely dictate altcoin tops and bottoms in terms of both the USD and Bitcoin trading pairs. As a result of this, you first need to master the moves of Bitcoin to try and consistently profit in altcoin trades.
Diagonal trendlines
Diagonal trendlines act as support during uptrends and as resistance during downtrends.
Diagonal support
The chart below illustrates a long-lasting diagonal support line for the Sandbox/U.S. Dollar trading pair. The SAND/USD uptrend started in January 2021 and lasted until mid-April 2021. During this period, the price touched the diagonal trendline five times and recorded a phenomenal 2500% price advance.
Sand/U.S. Dollar price chart with the diagonal trendline support
As another example, you can see the Ren Protocol/U.S. Dollar trading pair below.
Ren/U.S. Dollar price chart with both the diagonal support and resistance
On the REN/USD price chart above, the diagonal trendline worked as support from March 2020 until September 2020 (circled in green), whereas the same trendline worked as resistance in 2021 (circled in red).
Diagonal resistance
Diagonal resistance is the exact opposite of diagonal support. When the price is rising, it hits and gets rejected at an upper diagonal line which acts as resistance.
The Aave/USD chart below is a typical example of diagonal resistance.
Aave/U.S. Dollar price chart with the diagonal resistance
If you invert the above chart, the blue line would look like typical trendline support.
Below is another diagonal trendline resistance example. During the March 2022 crypto rally, the Alpha cryptocurrency made a 160% surge from the $0.25 horizontal trendline support and topped at the diagonal trendline resistance from May 2021.
Alpha/U.S. Dollar price chart with the diagonal resistance
Just like losing a trendline support, getting rejected at long-standing diagonal resistances can also lead to very large sell-offs as you can observe in the samples above.
Diagonal trendline channels
Prices can alternatively move inside a diagonal channel between both a diagonal support and resistance trendline which can be treated as potential entry and exit points.
FET/BTC price chart on the 8-hour time frame
Although breaking out of diagonal rising channels can lead to some violent price movements, these channels can also act as topping patterns that are completed with a fakeout. The above chart shows a typical fake-out from a rising channel (a bull trap), which marks the end of an uptrend.
In fact, statistically speaking, rising channels tend to break more to the downside than to the upside. Below is the Ethereum/Bitcoin rising channel that lasted for over a year.
Ethereum/Bitcoin parity chart
Diagonal channels can turn to bear and bull flags as well. The two samples below show a Bitcoin bull flag, which evolved from a descending diagonal channel in January 2021, and a Bitcoin bear flag that evolved from a rising diagonal channel between January and April 2022.
Bitcoin/U.S. Dollar chart with the descending channel and the bull flag
Bitcoin/U.S. Dollar chart with the rising channel and the bear flag
One important thing to note with both horizontal and diagonal trendlines is that you need to draw the lines right above or below the candle bodies, not from the wicks (see the Bitcoin bull flag chart above). Price can wick below support or above resistance, but what has statistically more importance is the closing body of a candle, as well as the next few candles that follow.
Closing thoughts
Trendlines are used to identify support and resistance levels on a price chart which can act as potential entry and exit points.
Horizontal trendlines are useful in determining past equilibrium prices and heavily traded areas while diagonal trendlines are useful in determining chart patterns and formations.
Losing long-standing horizontal and diagonal support levels can lead to very large sell-offs, while ripping through long-term resistances can result in extreme price hikes. Fakeouts are common near the support and resistance levels (bear and bull traps).
To avoid getting caught in a trap, it could be helpful to draw the trendlines from right above or below the candle bodies (not from wicks) on larger time frames and wait for a few more candle closings for confirmation.
The most critical factor to keep in mind when trading trendlines is that almost all altcoin prices have so far been correlated to Bitcoin’s price. Due to this, where exactly an altcoin hits a trendline support or resistance or whether it breaks through that level likely depends on where Bitcoin tops or bottoms during that period.
Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.
