How to draw a trend line on the chart
But one question still lingers among Forex traders — how to draw trend lines?
What Are Trend Lines? As the name implies, trend lines are levels used in technical analysis that can be drawn along a trend to represent either support or resistance, depending on the direction of the trend. These trend lines can help us to identify potential areas of increased supply and demand, which can cause the market to move down or up respectively.
Notice how in the GBPUSD daily chart above, the market touched off of trend line support several times over an extended period of time.
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This trend line represented an area of support where traders can begin to look for buying opportunities.
The difference is that the trend line above represents a downtrend, during which time it acts as resistance, giving traders an opportunity to look for selling opportunities.
The very first thing to know about drawing trend lines is that you need at least two points in the market to start a trend line.
Additional Resources Trend Lines As technical analysis is built on the assumption that prices trend, the use of trend lines is important for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.
Once the second swing high or low has been identified, you can draw your trend line. Here is an example of the first two swing lows that have been identified. Notice in the chart above, we have two main points at which we can start to draw our trend line. Once this level has been established, we can start to look for bullish price action to join the rally.
Sure enough, just a few weeks later a bullish pin bar emerged at trend line support. This gave traders an opportunity to buy at support to join the rally.
The Utility Of Trendlines
This brings me to a very important rule regarding trend lines. The longer a trend line is respected, the more important it becomes. Here is a great example of a trend line that was drawn from the daily time frame. Notice how the market formed a bullish pin bar at the third touch from this trend line.
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- The Utility Of Trendlines
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This is a perfect example of the type of buying opportunity a trader would look for using trend line support. Another higher time frame that I like to use to draw trend lines is the weekly chart. This time frame is great for identifying potential targets during uptrends or downtrends on the daily time frame.
The answer to this question depends on the trend line. This brings me to the most important part about drawing trend lines, or any support or resistance level for that matter.
How to Draw a Trendline On A Chart
The best trend lines are the most obvious ones. Moreover, this method can help you spot potential reversal points in the market. At this point in the lesson, you know that how to draw a trend line on the chart trend line can be used to identify potential buying or selling opportunities.
But this only works as long as the market continues to respect the trend line as support or resistance. This is where you have a chance to trade a market as it makes a turn from a major swing high or low.
However once the market broke trend line support, it quickly retested former support as new resistance. We can also use this strategy to identify a bullish reversal.
Notice how shortly after breaking trend line resistance, the market came back to retest the trend line as new support and formed a bullish pin bar in the process. This gave price action traders an opportunity to buy just before the market rallied for pips. This is a great way to use trend lines to spot potential reversals in the market. Summary 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.
A trend line is a diagonal support or resistance level on a price chart. How do you draw trend lines?
How to Draw a Trend Line
Start with a prominent high or low on a higher time frame such as the daily. From there, look to see if you can connect a trend line with the subsequent lows for an uptrend or highs for a downtrend. Is it okay if a trend line cuts through a candlestick?
It tends to respect Trendlines better.
However, as a general rule, a trend line should not cut through the body of a candlestick. Are you ready to begin using these techniques in your trading? It contains the four keys to drawing these levels accurately. Click the link below and enter your email to download the cheat sheet.
Technical Classroom: How to draw trendlines to indentify support & resistance on stock charts
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Of all the ideas and strategies that have evolved throughout the history of trading, the trend has been the one that has stood the test of time. But what is the trend?
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