How to Draw Trend Lines Correctly

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Forex Trend Line - Download as PDF File .pdf), Text File .txt) or read online. This is another example on the USD/CAD Forex pair. On the image we see a big bearish trend line on the daily USD/CAD chart. The third top on the chart confirms the trend line. The last top of the downtrend goes outside the trendline.

What Are Trend Lines?

This is another example on the USD/CAD Forex pair. On the image we see a big bearish trend line on the daily USD/CAD chart. The third top on the chart confirms the trend line. The last top of the downtrend goes outside the trendline.

Buying opportunities occur when the price drops down and comes close to the trendline that has caused upward bounces before. A downward slanting bearish trendline means the price has been trending down , so we want to look for selling opportun it ies.

Selling opportunities occur when the price moves up and comes close to the trendline that has caused downward bounces before. Trading only in the direction of the trend well let us exploit potential trendline bounces as efficiently as possible. And while they won't always give us winning trades, the trades that are winners should give us more pips than had we been attempting to place trades against the trend.

There is also the potential to trade a break of a trendline rather than a bounce, but that is a more advanced technique. This is something to be covered in a future article.

Coming full circle, trendlines are a very simple tool to use. You are connecting dots on a chart. But hopefully the three tips above will help you take drawing trendlines to the next level. Make sure that the lines you draw are connecting two or more highs or two or more lows, but have not been broken by the price between those points. Remember to look for at a 3rd bounce to validate a trendline.

Also, make sure you are taking advantage of trading with the trend by looking for buys in bullish markets and sells in bearish markets. Overall, I hope this makes you more confident in drawing trendlines. Identifying entries and exits are one part of trendline tranding; check out our Traits of Successful Traders guide to learn the other psychological and strategic tools traders need in a trendline strategy.

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Please enter valid email. Please fill out this field. Please Select Please select a country. Yes No Please fill out this field. The trend is not a line, but an area. When you build a bullish trendline you should take into consideration the lower candlewicks and the body bottoms.

Very often the lower wicks of the candlesticks might go outside the scope of the trendline. However, we know to think of the trendline as an area and not as a single line written in stone. An important point also to keep in mind is that as trendlines mature, there will be more of a tendency for price reactions at the trendline levels, and many times you will see false breakouts around these areas. The third top on the chart confirms the trend line.

The last top of the downtrend goes outside the trendline. However, we recognize from the price action at this test that most of the price action closed within the trendline area, and there were quite a few wicks around this zone, indicating that price was being rejected as it was trying to break thru. As a result, price records another drop before it eventually breaks the trend on the final attempt.

Since we discussed how to identify trends and build trendlines, we can now switch gears and discuss trading with trendlines. There are three basic occurrences on the trendline, which could be traded — trending move, correction, and breakout.

We will now go through each of these. When we confirm a trendline, we can prepare to trade with the trending move. With the trendline confirmation we have a clear area for our position entry point. In this manner, if we confirm a bullish trend, we can trade the next bounce from that trendline, assuming that price action confirms our setup. Have a look at the image below: The blue line is a trend line of the bearish price move you see.

The three arrows are the three base points, which form the trend. Notice that the third arrow is green. This is so, because it indicates an area of trend confirmation. We see a strong bearish candle after price approaches the trendline. This provided a good entry signal. Then we see a new lower bottom and a new correction to the trend. The price interacts with the blue trendline and then bounces downwards again.

The next move to the trendline is considered the last one, although there is a tiny 1-period bounce from it. This is a signal that the trend may be over or very likely to stall. Now I will show you how to spot and trade corrections of trending moves. However, I would like to emphasize that counter trend trading is for advanced traders. The reason for this is that it is a risky initiative to trade corrections. A correction corrective move is a move, which comes after an impulsive trending leg and brings the price back to the trendline area.

A corrective move should be smaller than the trending move. Also, in most cases, corrections tend to take more time to complete than the trending leg phase. As a result, corrections are definitely riskier and less attractive to trade.

In order to demonstrate how to trade corrections in the content of trendlines, we will use a channel for our example. Take note of the two bullish parallel trendlines blue. The black circles with the numbers show you the respective Trend phases. The green arrows show you the trending moves in the channel , while the red lines point out the corrective moves.

When we have a channel, we usually confirm the pattern with the third price move. In other words, we need only two bottoms in case of a bullish trend and not three as described above.

The reason for this is that after the third price move we have two bottoms on a bullish line and two tops on another bullish line, which is parallel to the first line. But maybe you can learn something extra here. Do yourself a favour and take a look at a chart and see if you can identify a trend.

Is there a main established trend? There are exceptions where you can go against the main trend, but I wont touch on that here. Timeframes suitable for these strategies are the daily, 4h, 1hr, 30mins. I use only 1 Metatrader4 indicator called Swing ZZ zz for zigzag. It is freely available in the net, just google it and you can download it. Thanks to the programmer who wrote it. So lets get started shall we?

I call this trendline trading strategy because it involves drawing trend lines using the swing highs and lows of the Swing ZZ indicator. Get the big picture first, that is very important.

For me, when I want to trade on the hourly chart, I first check the daily chart and also like to see what is happening in the 4hr chart as well to see if I can spot an obvious trend or channel or congestion happening in the daily and the 4hour charts. I stay out if there is congestion until breakout of the congestion happens and a trend is established.

I draw trendlines in the daily or on the 4rhly charts chart then switch to the 1hr timeframe. I identify trends in the hourly and draw trendline s as well. The trendline can be the daily, 4hrly or the 1hr trendline. You must place your order when that candle closes. Note you must wait for price to approach a trendline or very near to the trendline before you place your sell stop order. You should set your stop loss according to your money management calculations and risk tolerance.

Just do the exact opposite of short entry. Here is a screenshot of the trades I have taken using the strategy above.

Attached are account history screenshot of trades taken in two parts as I am unable to take 1 complete screenshot. This strategy is amazing ,hats off for you buddy. I just want to ask you that i do not have swing zig zag indicator so is there any other substitute? I mean is there any other way to identify swing highs and swing lows?

I hope you will reply soon. You really dont have to use the swing zz indicator at all in this strategy. But it does make it visually easy for me identify swing highs and lows in the past and based on that draw trendlines.

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In order to confirm a trend, you need at least three points lying on the same line!

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I hope this lesson has given you a better understanding of how to draw trend lines and how they can be used in the Forex market.

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