Plotting a trend line on a Forex chart gives very valuable information. In addition, it will also help to determine good entry and exit points, best positioning for profit taking and placing protective stops. So, shall we learn how to draw trend line to make it our good friend in profitable forex trading? 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 forex trend lines tutorial make up 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. Keep in mind that same charts may show slightly different “highs” and “lows” if you try to compare different Forex brokers. Another sample of drawing trend lines: main and inner downtrend lines.
Forex trading is a high risk investment. All materials are published for educational purposes only. The Authority’ on Price Action Trading. In 2016, Nial won the Million Dollar Trader Competition. I hope you guys pay close attention to today’s article and refer back to it when you have any questions about how to trade or identify a trending market. I will probably refer you to this article! Many traders spend countless hours and dollars on trend-following trading systems or on indicators that just end up confusing them and making the process of trend discovery a lot more difficult than it needs to be.
I have always been a strong proponent of visual observation of the raw price action of a market, as you probably know. I also believe that simply observing a market’s raw price action, from left to right, is the easiest and most effective way to identify a trend and to spot high-probability entries within it. However, just randomly jumping in with a trending market is not an edge or a strategy. As a market moves higher or lower, its previous turning points, or swing points as I like to call them, become reference points that we can use to help us determine the trend of a market. The most basic way to identify a trend is to check and see if a market is making a pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. Thus, general observation of a market’s swing points is the first point of call in determining if a market is trending.
If you do not see a pattern of HH HL or LH LL, but instead you see sideways price movement with no obvious general up or down direction to it, then you are probably looking at a range-bound market or one that is simply chopping back and forth. Tip: You shouldn’t have to think too hard about whether a market is trending or not. Most traders make trend discovery WAY too difficult. If you take a common sense and patient approach, it’s usually fairly obvious if a market is trending or not just by looking at the raw price action of its chart, from left to right.
Make sure you mark the swing points on your chart, as it will draw your attention to them and help you see if there’s a pattern of HH and HL or LH and LL, as discussed above. Characteristics of trending markets Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. In the diagram above, we can see that a trending market tends to move in spurts, moving in the direction of the trend and then stalling to take a breath before another leg in the direction of the trend.
Now, these retraces are when we have the highest potential for a high probability entry within the trend. Often, a market will retrace to approximately the level of its previous swing point before the trend resumes. In an uptrend these swing points are support and in downtrends they are resistance. Look at the very first diagram in this article for a quick refresher on what I’m talking about.
Also, let’s look at the chart we just looked at but this time with the support levels marked. Note: These same principles apply in a down trending market but we would be looking for price action setups from resistance rather than support. As we discussed previously, a trending market will tend to surge in one direction and then slow down and either consolidate in a sideways manner or retrace lower or higher, depending on what direction the dominant trend is. Trading from value in trends My primary mission as a price action trader is to watch for obvious price action setups that form after a market retraces back to a confluent level in the market.
This can be a swing point like we discussed above, a moving average level, or some other support or resistance level. I don’t use them all the time, but when I do I like to use the 8 and 21 day exponential moving averages. I use them as a general guide and a helper to find confluent points in a market. For example, often the 21 day EMA will align with a swing point in a trending market, this would be considered a confluent level since you have multiple factors lining up together.