Trend lines forex strategy is when you wait for the time the price of your interested currency attains a specific price level. The level is usually the point at which the price movement is likely to rebuff. While making use of the strategy, the forex trader needs to bear in mind that the market may react two special ways:
- The price on the trend line rebuffs off. This implies that it keeps to the trend.
- The price breaks the through the line, altering the trend and producing a fresh and opposing trend line.
This article is focused only on illustrating the first trend line trading strategy. The first thing you need to do if you want to trade with trend line strategy is to learn how to correctly draw trend lines.
Follow the following steps to draw trend lines
You’ll require not less than two points to draw a trend line. For an upward trend line, the price movement must generate no less than two swing lows. To draw a downward trend, the price movement needs to provide at not less than two swing highs.
Below is an illustration of how to draw an upward trend line is drawn:
For few traders, it may be simpler to draw a trend line on a line chart as illustrated in the image above at the position marked as the swing points and linked up with a trend line.
You can as well make use of a candlestick pattern or another form of chart and draw a parallel line. This is drawn with a yellow in the diagram above beginning at the initial swing low. When the price touches the trend line, the trader can either sell or buy depending on whether the price and trend line is moving in the upward or downward direction.
The trend line trading strategy can be utilized with a lot of time frames, even forex instruments. When you are trading with the trend line strategy, you do not require other trading indicators. However, they may be useful if you are very familiar with candlestick patterns as they can provide a forward signal about an altering trend.
Visual representation of the descriptive potential trading opportunity:
- Draw a blue trend line.
- Draw a yellow trend line.
- Breaching the blue trend line and a possibility of entry signal.
- Put a Stop-Loss order of one to two pips under the present value as illustrated by the yellow trend line.
- Putting a Profit-Target order at the position of the topmost Close candlestick of the preceding swing. The selling position is located at the lowest Close candlestick. Be cautious though and don’t confuse Close with a Swing High/Low!
The purchasing rules:
- Draw an upward trend line with the use of at least two lows. When you have more lows show a stronger trend and supposedly also the higher authority of the trend line.
- Wait for the trend line to be touched. Resist buying until the price touches it.
- After touching the trend line and the price in an ideal situation rebuffs, you can enter a long trade.
- You can put a Stop-Loss order at one to two pips below the yellow trend line.
- You can place a Profit-Target order can be placed at the top of the nearest former swing.
Rules you will follow to sell:
- Draw a descending trend line with the use of at least two highs. Additional highs illustrate a more robust trend and in theory a more valid trend line.
- Wait for the price to touch the trend line and resist buying till the trend line is touched.
- After the price has touched the trend line and the market in an ideal situation rebuffs, you can enter a short trade.
- You can place Stop-Loss order one or two pips on top of the yellow trend line.
- You can put a Profit-Target order underneath the nearest past price sway.
The trend lines trading strategy is a strategy that makes use of the price movements. In a few instances, it results in high profit or loss ratio.