How to Drawing Forex Trend Line

By Jeff Boyd

How to draw a valid Forex trend line? What is it used for..? And many other things Forex traders should know about.

Forex Trend Line book covers rules, purposes and advantages of using trend lines in Forex charts.

Trend line is our guide that helps to identify main price direction during a certain period of time. 

If placed correctly it will provide answers to:

Where to enter the market? 

What direction to enter: up or down? 

When to exit or be prepared to exit?

To start our learning journey, at first let's take a look at the bigger picture of the market using Forex charts. To obtain this bigger market picture, traders would need to simply zoom out their charts a little bit or switch to a larger time frame.

Once done it should become obvious where the market is going: it is either heading up or down. If it is still difficult to tell market direction, and it seems that the market currently moves sideways, traders need to zoom out even more.

Now it is just about common sense. If you are an intra day trader, you will focus on current price direction. Position traders which hold their position for days, weeks, months or longer, will need to obtain a bigger (weekly, monthly, yearly) picture of the market moves.

For example, to trade Forex on intra day basis (hold on to positions throughout a day for few hours, several minutes or so) traders need to look at hourly Forex charts or 30 minute or even smaller charts to get an idea of a current short term market direction.

Let's assume that we saw the market price going up, and the overall picture was telling us that we are in an uptrend. In the uptrend our trend line will be placed below the pattern formation. (In a downtrend our trend line will rest on the top of the pattern formation).

There are several important points on a chart that help us to draw a trend line in Forex. 

We call them A-B-C-D points.

So:
1. Find big enough picture to visualize current market move.
2. Look for ABCD points. 
3. Draw a trend line through A and C points.
4. The more A, C and following additional points the line will touch — the more accurately it will work.

Let's take a look at the real Forex chart. Try to find A-B-C-D points on the chart.

We will always look at our found Forex trend line to confirm that price still moves in chosen direction. Broken trend line will warn us of a possible reverse of the trend. A trend line is considered to be broken when a full bar body has completely formed on the other side of the line. A trend line is not broken when the price just pierced the line.

Notice: you'll find that from time to time your Forex trend line needs to be readjusted to the current price moves. Do so, but consider your old trend line to be valid for some period of time. It can still be helpful and hold the price in the future.

In a downtrend Forex trend line acts as resistance. The price bounces off the trend line to form a new move down. Once been broken, trend line becomes new support for newly formed uptrend. Usually price will come back to test that support line one more time before making sharp turn in other direction.

Vise versa, in an uptrend a trend line acts as support, when price returns back to support level it bounces off forming a new up-move. If an uptrend line gets broken, it becomes new resistance. 

Now let's take a look when and where to enter or exit the market using Forex trend lines.

Good Luck

Sourcing:
http://www.trendlinebook.com

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Trend vs Trading Range

Traders may get confused telling a trend from a trending range while it is very simple to distinguish both. 

Trading range does not present a clear picture of the market direction. It makes it difficult to tell whether the market is heading up or down.

That's because traders could not find those familiar patterns of higher highs and higher lows (for uptrend) or lower lows and lower highs (for downtrend). What traders do see is randomness in tops bottoms formations order.

Let's look at trading range illustration:

So what we can see is that trading range is actually a sideways pattern. It can be spotted often after a strong market move or near important support resistance levels where the market is trying to regain its strength to advance to the next level.

It is quite difficult to take right trading decisions in a ranging market. Therefore once spotted, it would be a good idea to walk away from charts for a while.

Does anyone trade during range bound markets?

Yes, many do.
The first group consists of traders who don't know yet that they are trading in a ranging market. Such unawareness often results in a losing streak for them.

The second group consists of prepared traders, who intentionally came to take advantage of the range bound conditions.

In order to trader profitably in range bound markets one has to have a special range bound trading strategy for that. Usually such strategies consist of momentum and volatility indicators like Bollinger bands, RSI, Momentum indicator etc. For example, with Bollinger bands indicator traders will be looking to trade off the upper and lower bands, where the market would be expected to reverse in order to continue its ranging path.

Sourcing:
http://www.forextrendline.com

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Trend trading used by pros

If you ask an experienced trader how he plans his trading session, the answer will be: "I open my charts and the first thing I want to know is Where the trend is going".

That's right, the examination of the market trends is what every analyst do daily.

How to spot a trend?

There are many simple ways to spot a trend:

1) Visual, where you zoom out the charts till you can see price direction clearly.

Zoom in — and the market noise is back...

2) By using indicators. Forex example, 200 SMA. If the market is trading above 200 SMA — that's a bullish market, everything below 200 SMA indicates bearish trend.

3) By using other trend following indicators.

4) Or by drawing trend lines! Simpy connet lower lows on your chart till you have a good visible trend line. Then do the same for higher highs.

What you'll get will be either a channel Up or a channel Down. Now it's easy to tell which direction the price is heading.

Sourcing:

http://www.forextrendline.com

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Forex Trend Trading

Are you trading with a TREND?

To be consistantly profitable in Forex, traders should be able to identify market trends.

Why do you need to know about trends in Forex? The answer is simple: when you know trend direction you can increase your chances to profit from a market move by opening a position in the direction of the trend. Counter trend traders can be often punished by the Forex market.

How to spot a trend? Any novice trader should be able to see simple slopes and hills on the chart created by the market price, a trained trader is able to see certain chart patterns. When the market moves it does so in a certain way, creating a pattern — a set of waves. The price makes peaks and valleys, or they are also called Tops and Bottoms.

Higher tops and higher bottoms will tell Forex trader that uptrend is in place. On the contrary, lower tops and lower bottoms suggest a downtrend. A good clean trend in a well trending market is one of the favorite trading environments for all Forex traders to trade in.


Sourcing:
http://www.forextrendline.com

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Forex Trend Lines

Plotting a trend line on a Forex chart gives very valuable information.

Not only the trend line will show a current trend (direction) of the price move, it will also depict points of support and resistance levels for market price.

In addition, it will also help to determine good entry and exit points, best positioning for profit taking and placing protective stops.

This very simple, but yet quite powerful tool will be one of the crucial indicators of possible trend reversal (when market price starts move in the opposite direction).

So, shall we learn how to draw trend line to make it our good friend in profitable forex trading?

In the uptrend market trend line is drawn below the pattern formation; in the downtrend — above. (That is why when the trend is going to change our trend line will be crossed, which therefore will give us a signal that the price can start moving in another direction.)

In the uptrend, Forex trend line is drawn through the lowest swing-points of the price move.

Connecting at least two «lowest lows» will create a trend line.

In the down trend, trend line is drawn through the highest swing-points of the price move.

Connecting at least two «highest highs» will create a trend line.

A trend line confirms its validity when the price respects this line. The more «lowest lows» / «highest highs» the trend line contains, the stronger it becomes.

Another sample of drawing trend lines: main and inner downtrend lines.

Sourcing:

http://www.forextrendline.com

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