The trend lines indicator is a technical indicator that will show an inclined support and resistance zone and will also show a trend line breakout. This will help traders to find the sweet spots in the market to open or close a trade.
In this post, I will explain the trend line indicator made by ForexBee. As we always focus on price action, we have made this trend line indicator using advanced price action concepts.
This is a free trend lines indicator, and I will provide a link to the indicator at the end of the post, so read the article without skipping any important step.
How does the trend line indicator work?
In trading, trend lines are the same as simple horizontal support and resistance, but they are inclined. Price behaves in the same manner as with horizontal support and resistance.
The horizontal support and resistance are also not single lines but zones. So in reality, accurate trend lines are also not single lines but consist of zones. That’s why in this indicator, we have used trend line zones, not a single trend line. This method helps to identify breakouts more accurately.
In this indicator, we have used the following parameters to get the maximum output:
- Fibonacci tool
- Candlestick patterns
- Price swings
- ATR (Average True Range)
- Higher timeframe trend
- Price patterns
These tools helped us to make a unique and price-action-based trend line indicator. We have not used simple mathematical techniques to make this indicator, as these techniques mostly fail in the long run.
Working principle
This trend lines indicator will draw a trend line zone when it confirms at least three valid swing points that are also aligning with the trend on a higher timeframe.
The trend lines will progress with the price until the price breaks through the trend lines. After a clear price breakout, the lines will turn into dashed lines and will stop progressing further, confirming a trendline breakout.
We have used the Fibonacci tool to determine the angle of the trendlines. This tool helped a lot to identify the trend lines with moderate angles. Because too-steep trendlines also break quickly and show false trend breaks. The Fibonacci tool helps to determine the strength of a trend. That’s why we used Fibonacci levels to identify only valid trend line zones.
Settings
In the indicator settings, you will get options to adjust the price swings based on the timeframe along with the ATR value and the trend line angle adjustment.
The swing length value represents how small a price swing the indicator should consider during the validation of a trend line. For example, a value of 5 means a swing point will have at least 5 candlesticks on the left and 5 on the right; then a price swing will form.
The ATR value represents the trend line zone, and I recommend you keep it at its default value.
How to trade using the trend line indicator?
There are many methods to trade with the trend line breakout indicator. It depends on how much risk you want to take in trading. This depends on whether you want to be a conservative trader or an aggressive one. However, I will recommend becoming a conservative trader and staying mentally peaceful. Because too many aggressive trades can also make you mentally sick due to the psychological issues of trading.
I will explain three methods to trade the trend line using the trend line indicator made by the ForexBee team.
01. Inside bar after trend line breakout
In this method, we will wait for the price to break the trend line drawn by the indicator. Once the price breaks the trend line with a big-body candlestick, then wait for the formation of an inside bar candlestick. This shows a little pause after the breakout, and the price will continue the trend again.
Here, we will trade only the small inside bar.
If the price broke the trend line in a bullish direction, then we will add a pending buy stop order at the high of the inside bar and the stop-loss below the low.
In this method, the stop-loss will remain small, and the risk-reward ratio will be high.
02. Open trade just after trend line breakout
The second method is an older method used by traders. According to this method, when the price breaks the trendline with a big-body candlestick, open a trade and place the stop-loss below the last swing low.
In this method, the take-profit level is always the starting point of the trend line.
Analyze the image below for a better understanding of this strategy. You can also explore more articles by searching “trend lines” on our website, ForexBee.
03. Trading broadening pattern after trend line breakout
If you are a trend line trader, then you must know about the price patterns that market makers form after the breakout to trap retail traders. One such pattern is the broadening pattern. Usually, after the trend line breakout, the price makes the broadening pattern, eliminating traders and then making a full trend later.
Check the image below; after the trend line breakout, the price made a broadening pattern. Here, the aggressive breakout traders will face a loss. So you will have to wait for the price to make the broadening pattern and then trade the fourth price move that aligns with the trend line breakout. For trade entry, you can also use candlestick patterns.
HTF Trend
The most important part of any strategy is always the higher timeframe trend. You should only trade in the direction of the higher timeframe trend.
If the price is making higher highs on the 4H timeframe, then you should trade in the bullish direction only on the 15M timeframe. However, if the higher timeframe trend is bearish, then you should only trade bearish trade setups on lower timeframes.
In this trend line indicator, we have also added the filter of a higher timeframe trend that will automatically align with the higher timeframe.
Click the button below to get indicator access.
The bottom line
I hope you will surely like this trend line indicator and the three strategies that I have explained. I personally like to trade the broadening pattern that forms after the trend line breakout.
You can also use your own trading strategy with this price-action-based trend line indicator.
If you have any questions, then don’t forget to ask in the comments. You can also explain your suggestions in the comments below about the indicator.
