Trading trend lines
Adam Milton Updated May 31, Trend lines are one of the most basic concepts of day trading and long term investingand they are also one of the most powerful concepts.
Trend lines have been used for trading for as long as there have been markets, and they are well suited to any type of market stocks, currencies, commodity futures, trading trend lines. Trend lines are based upon the idea that markets move in trends sustained movement in one direction, and then sustained movement in the opposite direction.
Trend lines show the general direction of the price movement upwards, downwards, or sidewaysthe strength of the current price movement, and where future support and resistance are likely to be located.
What are Trend Lines?
But one question still lingers among Forex traders — how to draw trend lines? What Are Trend Lines?
Trend lines show three distinct but related pieces of information about their market. They show the direction of the current price movement, the strength or more precisely the speed of the current price movement, and the future support and resistance of the current price movement. These pieces of information can be used independently of each other, or they can be used together as part of a larger trading system.
Each of these valuable pieces of information are described in detail in the following articles : Direction of Price Movement Support and Resistance Drawing Trend Lines Trend lines are straight lines that are drawn on trading trend lines price or indicator charts.
The following tutorials explain how to draw each type of trend line : Drawing Upward Trend Lines Drawing Sideways Trend Lines Trading with Trend Lines There are many different ways of trading using trend lines, but two of the oldest ways are trend line bounces and trend line breaks.
- 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.
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Trend line bounces are trend continuation trades, because they expect the price to touch the trend line and then reverse back to its original direction. Conversely, trend line breaks are trend reversal trades, because they expect the price to go through the trend line and then continue in its new direction.
Even though they are opposite trades, both trend line bounces and trend line breaks are based upon trend lines being support and resistance, so many day traders trade both of these trades. The following tutorials describe trend line bounces and trend line breaks in detail : Trend Line Bounces.
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