The trend line is a type of support and resistance. We all know about support and resistance a very basic form of technical analysis in forex trading. Trendline also acts as support and resistance. How? The answer is that the support and resistance, we all know about it, are horizontal support and resistance whereas the trend line is diagonal support and resistance. There is no difference between them except they are two types of the same thing. Let’s see in the chart for a clear view.
How to draw Trend line?
Now let’s talk about drawing a trend line in a candlestick chart. There are many ways to draw a trend line. Every trader will show you his experience and everyone has a different perspective. Some will say to draw trendline only on swing points and others will say to draw trend line at candle closing points. But I will use both of them and first we will start from very basic that how to draw a line (not trendline).
To draw a line it’s very obvious that at least two points must be on the chart to draw a line. When this line will join at least three points it will be called a trend line. Which points to select? The angle of trendline? when to draw a trend line and when to not? These are the questions in everyone’s mind. I will answer in the next paragraph. Let’s see in the image below to draw a line and then a trend line.
The three points ( minimum ) used to draw a trend line must be swing points. If you don’t know about a swing point then I will make it easy here for you.
The point which has two consecutive higher lows to the left and two consecutive higher lows to the right is called the swing low point.
The point which has two consecutive Lower highs to the left and two consecutive Lower highs to the right is called the swing high point.
Trendline must be drawn only through swing points. Furthermore, try to figure out waves and patterns in the price. Let’s discuss the angle of the trendline. I must say angle doesn’t matter in drawing a trendline but to make it easy for newbies angle should be between 40 and 60 degrees. When you will practice you will come to know everything about trendline with experience. One must stay consistent and persistent instead of changing strategies daily.
This is a simple, effective, and correct way to draw a trendline. Now let’s discuss how to trade a trendline in forex trading. There is no need to go for many and many confluences or anything else. Just Trade with the trend. A trend is your friend.
How to trade Trend line Breakout?
To trade trendline with trend just watch for at least two higher highs (for uptrend) or two lower lows (for downtrend). Big candle breakout of trend line will be entry point. Fibonacci tool can also be used here to get a better risk-reward ratio. But every setup will be different so you have to decide either to enter on a Fibonacci retracement to 61 Level or enter just after big candle breakout.
Stoploss will be below the swing low point after descending trendline breakout or above the swing high point after ascending trendline breakout. Don’t forget to include spread when calculating Lot size or choosing stop loss level.
Take profit will be divided into two parts. Take profit 1 will be at the start of trendline either ascending trendline or a descending trendline. Take profit 2 will be at the 161 inverse Fibonacci level. Fibonacci will be drawn from the start to the endpoint of the trendline.
This is a complete trading setup. One must follow risk management to stay long in the trading business. Learn more about discipline.
I Can Accept Failure but I Can’t Accept Not Trying.
Note: All the viewpoints here are according to the rules of technical analysis. we are not responsible for any type of loss in forex trading.