TRENDLINES IN FOREX TRADING? “The trend is your friend” Have you heard that saying before? If you’ve been trading for more than 15 mins you should have. My favourite part is the often forgotten second verse: “The trend is your friend until the bend at the end!” For those of you that know me, you’ll know I’m a huge fan of trading in the direction of market strength. And one of the easiest ways to identify market strength is to use trendlines.
Trendlines work in forex trading. They’re remarkably accurate and one of the most useful ways I’ve found to identify entry and exit levels. I find them most accurate on the 1hour and daily charts, however you can use them on pretty much any timeframe down to the 5-minute chart. Why do trendlines work? Trendlines are easily identified and programmable (for those using an EA or algorithm), as a result, the majority of trades use them and they become self-fulfilling.
Which then pushes price down again, making a new lower low.
As you can see from this example, these trends don’t always a precise level. Often, you’ll see price bounce before it hits the trend line, or push through slightly before falling back into the long term trend. As a result, trend lines should only be one weapon in your arsenal, don’t rely on them solely.
A few other questions I’m often asked about trend lines:
If you were to sell around this red line, you’d be trading against the direction of the overall trend.
This is also what’s known as counter-trend trading, and not something I advise traders to do.
How do you know when a trend has changed?
Great question! Predicting when the bend will happen is incredibly difficult, so when it does happen you need to be ready to cut your trade.