How to Trade Forex: Trend Lines
Trend lines are probably the most common form of technical analysis. They are probably one of the most underutilized ones as well.
If drawn correctly, they can be as accurate as any other method. Unfortunately, many traders don't draw them correctly or try to make the line fit the market instead of the other way around. In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys). In a downtrend, the trend line is drawn along the top of easily identifiable resistance areas (peaks).
How do you draw trend lines?
To draw trend lines properly, all you have to do is locate two major tops or bottoms and connect them. Three touches on the trend line will confirm the trend.
Types of Trends
- There are three different types of trends:
- Uptrend (higher lows)
- Downtrend (lower highs)
- Sideways trends (ranging)
Important things to remember about trend lines:
- It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.
- The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.
- Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.
- Most importantly, Forex Trading Floors coaches recommend that you DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn't a valid one!
To Summarise Trading Trends:
- Make sure you practise drawing the charts correctly
- Have someone with more experience check your trend lines before using them to trade
- Never trade live when trying something new
Forex Trading Floors also offers one-to-one coaching with our trader coach, either online or at the trading floors.