Trendline Strategy That Will Grow Your Forex Trading Skills
Trendlines have proven to be a changer strategy in the forex trading industry.
A trendline is a line drawn on the market charts that connects the swing highs and swing lows during a trending market
Trend lines hold patterns that recur over and over as markets are driven by humans and human nature never changes.
By trending market, we mean the market is either on an uptrend or downtrend.
Uptrend
In an uptrend swing high and swing low can be defined as;
Swing high- end of a run and before a pullback begins
Swing low- end of a pullback and before a run begins
This simply means that price is making higher highs and higher lows
Downtrend
In a downtrend swing high and swing low can be defined as;
Swing high- end of a pullback and before a run begins
Swing low- end of a run before a pullback begin
This simply means that the price is making lower lows and lower highs.
When working with trendlines what you need to know is that trendlines should be treated as areas where the action is expected to happen. Price won’t always move smoothly especially in trending markets so use trend lines as a reference for future market turning point areas.
Concepts to Follow When Drawing Trend Lines
Here are five important concepts you should follow when drawing trend lines
· Treat trendlines as areas: unless you are a trend following trader you need to treat trendlines as areas in your analysis just like support and resistance where you expect markets to turn or breakthrough.
· A minimum of 2 touches: Accurate trendlines require at least 2 touches. The more touches the better but what is important to note is that more touches do not guarantee that price will hold the next time as the price can easily breakthrough.
· Don’t force trendlines: Draw the most obvious level that will help your analysis and if they are not clear leave them. This is because there won’t always be a suitable price movement where you can draw a trendline.
· Trends are not always smooth: Just like I said at the beginning price won’t always move smoothly and so are trends. They are often imperfect and choppy so be careful and accurate.
· Learn to draw your trendlines long and further out: Drawing trendlines longer and further out helps ensure that if the price comes back to this trendline in the future you are ready to look out for price action.
Why Trendlines Work?
· Trendlines act as a form of support and resistance.
· A break of a trendline can signal a possible trend change.
A quick tip: Don’t enter trades blindly just because the price has touched a trendline, always wait for price action.
