Trendline 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 act as support and resistance. How? Answer is that the support and resistance we all know about is horizontal support and resistance whereas trendline is a diagonal support and resistance. There is no any difference between them except they are two types of same thing. Let’s see in the chart for a clear view.
How to draw Trendline?
Now let’s talk about drawing a trendline in a candlestick chart. There are many ways to draw a trendline. Every trader will show you his experience and everyone has a different perspective. Someone will say to draw trendline only on swing points and other will say to draw trendline 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 trendline. Which points to select? Angle of trendline ? when to draw a trendline and when to not? These are the qestions in everyone’s mind. I will answer in next paragraph. Let’s see in the image below to draw a line and then trendline.
The three points ( minimum ) used to draw a trendline 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 two consecutive higher lows to the left and two consecutive higher lows to the right is called swing low point.
The point which has two two consecutive Lower highs to the left and two consecutive Lower highs to the right is called 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 about angle of trendline. I must say angle does’nt matter in drawing a trendline but to make it easy for newbies angle should be between 40 and 60 degree. When you will practice you will come to know everything about trendline with experience. One must stay consistent and persistant 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 trend. As trend is your friend.
How to trade Trendline 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 trendline 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 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 swing high point after ascending trendline breakout. Don’t forget to include spread when calculating Lotsize or choosing stoploss level.
Take profit will be divided into two parts. Take profit 1 will be at the start of trendline either ascending trendline or descending trendline. Take profit 2 will be at the 161 inverse Fibonacci level. Fibonacci will be drawn from start to end point of 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.