Trend Lines is the most popular and versatile trading tool by which traders can get a lot of services to get success from trendline trading. Whether it is day trading, position trading, or swing trading, you can use it for any of them. Therefore, all types of traders will get the benefits of trading with Trend Lines. But most traders don’t get the proper concept of Trend Lines in forex. They rather draw peculiar lines on the chart while drawing Trend Lines. This is why we are bringing you this guide article to help you understand the right concepts of Trend Lines in forex.
What is a Trend Line?
Sloping areas on a trading chart which show potential selling and buying pressure of a trader is basically known as Trend Lines. The only difference between them and support and resistance is one is horizontal and the other one is sloping. There are two types of Trend Lines in forex: Upward Trend Line, Downward Trend Line. Sloping area on a trading chart which shows the upward buying pressure is known as Upward Trend Line. Sloping area on a trading chart which shows downward selling pressure is known as Downward Trend Line.
How does it work?
Trend Lines basically work according to its classification. If the lines are upward then they will work for buying pressure whereas if the lines are downward then they will work for selling pressure. But the main goal of these lines is to provide you the ideas about trendline trading. To understand that, you must be well aware of trendline meaning. You also need to learn how to draw Trend Lines correctly in order to understand how they work. First you need to focus only on the major swing points by ignoring everything else. Then if you can connect two major swing points and adjust most number of touches, your Trend Lines will be drawn correctly. After that, you will understand how they actually work as you will find the upward trend line and downward trend line.
How can you use the Trend Line to identify the direction of the trend?
This one is really a simple process but still most of the traders make mistakes in identifying them because of their lack of knowledge. First of all you have to draw a correct trend line as we have mentioned earlier. Once you are done drawing Trend Lines, you will have to ask yourself a question about your Trend Lines whether they are pointing higher or lower. If the Trend Lines are higher, then the market will be in an uptrend. If it is lower, then there will be a downtrend. By following this technique, you can easily identify the direction of the trend. But there are some other rules as well by which you can identify the direction of a trend. Trend Lines can give you signals when the market conditions are changing. To do that, you need to pay attention to each and every step of the Trend Lines. The market will move into a range condition when the Trend Lines get flatter. But when they get steeper, it will mean the trend has become a quite stronger one. Importance of understanding this technique can’t be described in words. Because of the competitive and changing nature of the market conditions, you can’t stick with one or two trading strategies. You need to change your strategies as well according to the market condition. Only then you will be able to get success in trendline trading. If you use the same strategy in all market conditions, then you will be the sufferer as you will have to witness a disaster in trendline trading.
Trend Line Trading
Trend Lines are one of the safest places to do your trading. If you are looking for a good trading opportunity, then you must trade near the Trend Lines. It will surely be quite beneficial for you. Because once you start trading near the Trend Lines, you will find yourself in a tighter position to stop loss on all your trading. It also improves your chances of getting risk to reward and improve the ratio as well. In trendline trading, you will have the opportunity to combine Trend Lines with a support and resistance system and it will lead you to some of the greatest trading positions and openings. But the point of your entry will always play a vital role in this type of trading. Therefore, you must be well-aware of your trading entry point in trendline trading. You can use hammer reversal candlestick pattern or bullish engulfing reversal candlestick pattern or any other type of reversal pattern to enter into a trade. This will be known as your entry trigger and it will decide the future activities of the trade as well. And therefore, you will enter into the trade after the bounced market off the Trend Lines so that your trades have the most possibility to go higher.
The market won’t react in the same way all the time and this is why you need to put a strategy which can break out any market situation. Sometimes it can be really difficult to enter into a trade timely in the trending market. It happens because of the deep and shallow pullback. It means if you enter into a trade too early at the time of a deep pullback, you need to suffer a big loss in the trending market. But if you enter into a trade too late at the time of a shallow pullback, you have a chance to miss the move as well. So, how can you sort out this problem and make your way out of it? To get out of this problem, you will need to introduce the Trend Lines breakout strategy. First, you will need to wait until there is an uptrend pullback. Second, you have to draw a trendline only by connecting the highs of the pullback. And lastly, when the price will break your trendline, enter into the trade instantly. Breakout strategy works because when the price breaks above the Trend Lines, It alerts you about the fact that the buyers are in control of the trend now and it will certainly resume in no time. In case it doesn’t resume, then it will mean that the sellers are still in control and you just have a misunderstanding. So, you need to wait for a bit until the buyers regain their control over that trend.
Trend Line Technique
By using some popular and simple trend line technique, you can easily ride massive trends. To apply the technique you need to follow these steps:
- Try to draw a trend line (upward)
- Then go below the Trend Lines to trail your stop loss
- And then exit the trade immediately when the prices reach below the Trend Lines.
But this technique may not work in some cases. When you give back a huge amount of open profits, you risk everything there and then the trend moves parabolic. In case you are wondering how to learn a trend is parabolic, then there is also a way to do that. Just look for these two following things. First is a steeper or straight trend line and the second one is the range of the candles cause they will get larger. If these two occur, the market will move in a parabolic way. At this point, you have to trail your stop loss on the trendline market once again and leave the trade once the price reaches close below it.
How can you use the Trend Line to identify trend reversal?
If you are asking yourself this question and finding answers here and there, then we will guide you through this. When price breaks out above the downward Trend Lines, then many of you think that as the Trend Lines are broken the market will reverse higher. But it will rather head lower to downward to resume itself. It will happen because breaking of a trend line doesn’t mean the trend is done. If there is a false breakdown in the market, then a trend line will need adjustments. To identify a trend reversal you can follow three steps. Firstly, wait until the price breaks above the Trend Lines. Secondly, again wait until the formation of a higher low so that you can get the idea that the sellers are exhausted. Finally, when the price breaks the swing high, the trendline trading market will certainly reverse higher.
Each and every step of Trend Lines can give you signals about the condition of the market to help you in adjusting your trading strategies according to the market situation. If you use the trendline breakout technique, you will better time your entries in a trendline trending market. You can even use Trend Lines to trail the stop loss and get an opportunity to ride massive trends in the market.