Forex Trading Trendline Analysis
Trend and Trend lines
Trend and Trenlines are part of Forex Trading Trendline Analysis. We have already give an overview of the main tools that are going to help when interpreting the charts, but before we start to introduce Forex trading, go back to step back and understand the essence of any trade in financial markets: detect a trend and join it.
You can not overlook the power and importance of trends in the markets; because, you must understand them in order to have a greater percentage of positive trades. That is why, today we will stop to understand how to spot trends and adapt our trades to them.
What are the trends?
As a general rule, the market always moves in trends, whether they are bullish, bearish or sideway trend. Actually, speaking of sideway trend is somewhat ambiguous, because a sideway market is simply a market without definite trend, when we should not trade because technical tools cannot determine anything out of it.
Then let’s focus on the bullish and bearish trends. An uptrend is when the highs and lows of the line shows that the price is gradually going higher and higher, while a downtrend is when they are getting down. That is, uptrend is when the price rises consistently and bearish when it falls.
The essence of a good operation lies in being able to detect these trends as soon as possible and join them. Do not forget that a tendency always is more likely to continue in the same direction as turning and changing. Surely you’ve heard a thousand times while learning Forex, “always keep in peace with trend”. Although this theory may be evident, we must always keep in mind that trading against the trend is a very bad idea!
With the help of indicators that we will discuss in the later articles, we can identify a definite trend in the charts, which are called trend lines. The trend lines are nothing more than a visual guide that draw us to find that the market is in a bullish or bearish trend.
In bull markets, the trend line is drawn joining the growing minimum price, while in the lower highs bear markets come together. Like any line to be drawn must have at least two points (i.e. two consecutive minimum or maximum), and even recommended that the trend line is confirmed by a third point to be considered valid.
How then we use trend lines? It is very clear that their use will be very similar to the support or resistance: we mark areas where price will tend to be maintained in its current main direction, being able to establish good opportunities to enter the market.
Similarly, a break of a trend line can be a clear signal that the current trend is losing strength and could be a lateralization or a turn of the trend at any time.
As a Forex strategy is always a good idea to follow the main trend of the price. However, there are certain market situations where there is not only a marked trend line guiding the price movement, but it also moves within a channel that determines the maximum and minimum thereof.
The channels can be sideway, bullish or bearish. The side channels have in principle a special interest, unless you want to use a specific strategy to trade. It is always dangerous to trade in sideways market. So, just detect and take advantage of a bullish or bearish channel that will be much more profitable for our trades in Forex.
What is a trend channel?
A channel is a delimited zone price movement of two lines: the main trend line, joining the higher lows in the case of an uptrend or lower highs in the case of a downtrend; and a parallel to this that links the higher highs in the case of an uptrend and decreasing minimum in the case of a downtrend line.
The price will tend to always move within that channel until the breakage thereof occurring, and it is precisely this movement that we tap into our operations.
How a channel is formed?
A channel provides many relevant to our operational information: it gives us entry points or profit taking whenever the price hits one of the two channel lines, and also helps us to place stop loss always outside the channel.
Anyway, we can say that the channels in the real market practically are never as perfect as the theoretical drawings that represent them . You may not always perfect steps are drawn from the bottom to the upper channel, or the parallel line (the trend observed more often) is not always touch. You have to know how to play with this feature.
To operate a channel, it can be operating in favor of the trend channel, opening positions whenever the price touches the trend line, or countertrend operating it every time the price touches the parallel line has been drawn. As the price approaches the opposite line, we must close at least partially the operation. But each touch of one end of the channel must be an approach what action should be taken at that point.
It is very interesting also operate the channel breaks, as are frequently accompanied by movements could gather a handful of pips. It is therefore especially interesting countertrend channels operate waiting a break and trend change it. Normally, a broken channel is always accompanied by a price retested using that channel to support its new movement, and that is precisely the optimal entry point.
Please note that: Successful Technical Analysis largely depends on the functionalities of the MT4 Platform provided by your broker. If you are new in forex trading, you might consider reading the article on what is the best trading platform, Introduction to MT4 Platform and MT4 Platform functions. We have used a fully functional MT4 platform provided by HYCM Broker. Read why their MT4 platform has better trading conditions from the HYCM Broker review.
Technical Analysis in Forex Trading
|Lesson 1||Types of Technical Analysis Indicators|
|Lesson 2||Forex Trading Trendline Analysis|
|Lesson 3||Forex trading Chart Patterns|
|Lesson 3.2||Double Tops and Double Bottoms|
|Lesson 3.3||Head and Shoulders Pattern|
|Lesson 3.4||Rectangle Chart Patterns|
|Lesson 3.5||Triangle Chart Patterns|
|Lesson 4||Japanese candlestick Trading Strategy|
|Lesson 4.2||Japanese candlestick Trading Strategy Part 2|
|Lesson 5||Support and Resistance Levels|
|Lesson 6||Types of Technical Analysis Indicators|
|Lesson 6.2||moving averages Technical Analysis|
|Lesson 6.3||MACD Indicator Technical Analysis|
|Lesson 6.4||RSI Indicator Technical Analysis|
|Lesson 6.5||Stochastics Indicator Technical Analysis|
|Lesson 6.6||Technical Analysis with Bollinger bands Indicator|
|Lesson 7||Fibonacci Retracement Forex Strategy|
|Lesson 8||Forex Trading Pivot Strategies|
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