Forex Trading Analysis Trend Lines

FX Signals FxPremiere.com | Trend lines are fairly graphical representations of Forex price behavior that guide Forex traders’ decisions to buy, sell or even issue a stop order in trading. Rooted in the Dow Theory, market prices always indicate a ‘trend’ after discounting several factors such as the political environment that affect it. Thus, trend line analysis only studies the price behavior based on this presumption. Price movements exhibit 3 different trends i.e. Upward trend, Downward trend and a Reversal trend.

Upward trend

An upward trend line may be drawn by adjoining two successive price lows and can be validated to be a price trend if more than 2 successive lowest lows can be adjoined by a straight line. In simple words, the trend line will always be drawn underneath the geometric patterns exhibited by price movements on a trading chart.

Forex Trading Analysis Trend Lines

Downward trend

Similarly, a downward trend line can be drawn by adjoining two and more consecutive highest highs of the price movement. Here, the trend line will be drawn above the geometric patterns exhibited by price movements connecting each price high.. When a particular trend line breaks into a new direction, it indicates a trend reversal. . Simply put, in the figure below, an upward trend line will reverse the moment the price behavior pattern lies below the trend line . However a trend reversal is not always necessarily an indication from the trend line when it merely pierces through a price pattern.

Support & Resistance in a trend line

In the case of an upward trend, the trend line will indicate a support force owing to the rising demand while even the prices rise, spurred by precedented market price behavior. Every successive upward move of the trend line acts as a support until the point where the trend line is broken which is when the market price becomes resistance. The moment the trend line shows a descending trend, it triggers massive selling of the underlying currency pair and the increasing supply makes the market bearish.

FX Trend Lines

Trend lines assist traders extensively in deciding, timing and executing their trade while also minimizing risks if these are charted right. A trader ideally buys at the point of a dip in prices during an upward trend i.e. when the prices touch the trend line and engages in selling when the price movement patterns rise in a downward trend. Trend line analysis is also instrumental to identifying and planning entry or exit points in a particular trade by making calculated guesses around the price action exhibited on and around the trend line.

Summary

In summary, trend lines are an excellent way to take a ‘macro’ look at the general direction of a forex contract. They are relatively simple to draw as well as to interpret and are used relatively frequently by novice and expert traders alike. The use of trend lines also supports the use of supports and resistances.

One of the most common things to look for is a trend line break. The biggest problem that most traders have with trying to use a trend line break is the fact that they have no idea what time frame to use

A Beginner’s Guide to Candlestick Trading

Predicting when a market is about to change directions is one of the most difficult things a trader can attempt to do. However, there are some telltale signs that will appear as the markets get ready to change trends. This will be the case no matter if it is a simple intermediate pullback, or an actual overall trend change.

One of the most common things to look for is a trend line break. Quite often, I will see traders talk about the trend changing on an hourly chart. This isn’t the trend, but rather what the market is doing in the very short-term.

How to Read Forex Charts

Because of this, when you see a trend line break on the weekly charts, it should catch your attention. With this being said, there are other things that you can look at in order to predict a market turn.

If you see a sudden impulsive move through the 200 day moving average, you can bet your bottom Dollar that somebody else’s seen it too. This is exactly the kind of move that you need to take advantage of as you need other market participants to step in and give you a hand.

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There’s also something known as the “one, two, three pattern.” Simply put, this means that a market may pullback from an ongoing trend, and that would be what you would consider the “one” of the pattern.

Trading the Trend Lines Guide

Just make sure it’s obvious
One of the biggest mistakes that Forex traders seem to get sucked into is the idea that you have to be constantly different than the herd. I cannot think of a more dangerous bit of advice as far as trading is concerned. You do not have the volume nor the capital to move the markets yourself, and as such you need the rest of the market participants to play along with you. This is why I like to use obvious clues and setups that are so blatantly obvious that the entire world is paying attention to them. I don’t want to be the sneakiest trader in the room, just a profitable one.