Trend lines have become widely popular equally a way to identify possible support or resistance. Simply ane question nevertheless lingers amidst Forex traders – how to depict trend lines?

In this lesson, nosotros'll discuss what trend lines are also as how to describe them. I'm also going to share a undercover way that I like to use trend lines to spot potential tops and bottoms in a market, so exist certain to read the lesson in its entirety.

What Are Trend Lines?

As the name implies, trend lines are levels used in technical assay that tin exist fatigued along a trend to represent either support or resistance, depending on the management of the trend. Think of them as the diagonal equivalent of horizontal support and resistance.

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These trend lines can help us to place potential areas of increased supply and demand, which tin can crusade the market to move downwards or up respectively.

Permit'due south take a look at a trend line that was drawn during an uptrend.

Notice how in the GBPUSD daily chart above, the market touched off of trend line support several times over an extended period of time. This tendency line represented an expanse of back up where traders tin can brainstorm to await for buying opportunities.

Now let's accept a look at a trend line that was drawn during a downtrend.

audnzd forex trend line resistance level

Similar to the GBPUSD uptrend in the start chart, this AUDNZD downtrend touched off of our trend line several times over an extended period of time. The departure is that the trend line above represents a downtrend, during which fourth dimension it acts as resistance, giving traders an opportunity to look for selling opportunities.

How to Depict Trend Lines Correctly

Now that we have a good understanding of what trend lines are, let's go over how to draw them.

The very first matter to know near drawing trend lines is that yous need at to the lowest degree two points in the marketplace to kickoff a trend line. Once the second swing high or low has been identified, you can describe your trend line.

Here is an instance of the start two swing lows that have been identified.

how to draw a forex trend line during an uptrend

Notice in the chart above, we have two main points at which we can first to draw our trend line. One time this level has been established, we can showtime to await for bullish price action to join the rally.

Sure enough, only a few weeks later a bullish pin bar emerged at tendency line support.

The bullish pin bar above provided a indicate to traders that the trend line was likely to hold. This gave traders an opportunity to buy at back up to join the rally.

three Keys to Drawing Trend Lines Effectively

In that location are three very important keys to drawing effective trend lines.

The college time frames will always produce the most reliable tendency lines, so first in that location and piece of work your style downwards
Most tendency lines you come beyond will take some overlap from the high or depression of a candle, but what's important is getting the nigh touches possible without cutting through the body of a candle
Never endeavour to force a trend line to fit – if it doesn't fit the chart then it isn't valid and is therefore non worth having on your nautical chart

Let's accept a wait at each of these in greater detail.

Use the Higher Time Frames for Drawing Trend Lines

Just about everything I do in the Forex market begins on the daily time frame and drawing trend lines is no exception. One reason I prefer the daily fourth dimension frame for drawing trend lines, also the fact that I do near of my trading from this time frame, is that it represents an extended period of fourth dimension.

This brings me to a very of import rule regarding trend lines. The longer a trend line is respected, the more than important it becomes. A trend line that extends over ii years will always be considered more than of import than a level that only extends the course of two weeks.

Here is a great example of a tendency line that was drawn from the daily time frame.

In the GBPCHF daily chart in a higher place, after the 2nd swing low was made we could have drawn our trend line. Find how the marketplace formed a bullish pin bar at the 3rd touch from this tendency line. This is a perfect instance of the type of ownership opportunity a trader would await for using trend line support.

Another higher time frame that I like to use to draw trend lines is the weekly chart. This time frame is great for identifying potential targets during uptrends or downtrends on the daily fourth dimension frame.

Here is a cracking example of how a weekly trend line on CADCHF can be used to place a potential target.

The chart above shows a weekly tendency line that tin be extremely useful to identify a potential target for CADCHF. The daily time frame is in an uptrend at the moment, so this weekly tendency line would give us a nifty starting identify to look for a potential profit target.

Trend Lines and Overlap

1 of the most common questions when information technology comes to drawing trend lines is, should they be drawn from the high/depression of a candle or from the open/close of the candle. The answer to this question depends on the trend line.

It's very rare to detect a tendency line that lines up perfectly with highs or lows. Similarly, it's rare to find a trend line that lines upward perfectly with the open or shut of each candle.

Let's take a look at an case

Notice how the trend line to a higher place does not perfectly line upward with the highs of each candle, nor does it line up perfectly with the open or close of each candle. This doesn't mean that the trend line is invalid. What's important here is that the weekly nautical chart to a higher place never closed above this level.

The about of import part of any trend line is to get the almost touches without the level cutting off part of a candlestick. If you find that a tendency line cuts through the torso of a candlestick, so the trend line is probable not valid.

Never Try to Force a Trend Line to Fit

This is perhaps the most mutual pitfall Forex traders make when drawing trend lines. We telephone call this "curve fitting" and it happens when a technical trader is so convinced that a level should exit, that the trader begins to try to make the level fit the toll action on the nautical chart.

This brings me to the most important part about cartoon trend lines, or any support or resistance level for that affair. The all-time trend lines are the most obvious ones. So if a tendency line doesn't fit well, it's probably best to motion on to another pattern.

How to Use Trend Lines to Spot Potential Reversals

Every bit promised, I'yard going to testify you a way that I like to apply trend lines to make up one's mind the strength of a trend. Moreover, this method tin assist you spot potential reversal points in the market place.

At this point in the lesson, you know that a trend line tin can be used to identify potential buying or selling opportunities. Just this only works as long as the market place continues to respect the trend line equally support or resistance. And then what happens when the market no longer respects the level?

This is where yous take a chance to merchandise a market as it makes a plough from a major swing loftier or low. Beneath is an example of a market place that bankrupt trend line support and and so retested that same trend line as new resistance.

We can run into in the GBPCHF daily nautical chart above, that the pair had respected a trend line for some time. However once the market broke trend line support, it apace retested erstwhile support as new resistance. This retest gave traders the opportunity to sell the pair, which would take resulted in a substantial proceeds over the next several days equally the marketplace sold off.

One thing to annotation nigh using tendency lines in this manner is thatit works all-time when you lot have a really make clean tendency line with three or more touches. The more obvious the trend line is, the meliorate this strategy will work.

Nosotros can as well utilise this strategy to identify a bullish reversal.

usdjpy former trend line resistance becomes support

Observe how shortly after breaking tendency line resistance, the market came back to retest the trend line equally new support and formed a bullish pin bar in the process. This gave price action traders an opportunity to buy simply before the marketplace rallied for 800 pips.

This is a great fashion to apply trend lines to spot potential reversals in the market. It is without a doubt ane of the best ways to catch a big move as a market changes direction.

Summary

I hope this lesson has given you a amend understanding of how to draw trend lines and how they can exist used in the Forex market.

We've covered a lot in this lesson, so allow's recap some of the important points.

Call up of trend lines as the diagonal equivalent to horizontal back up and resistance levels
Trend lines tin help traders place ownership and selling opportunities that occur inside a strong tendency
The college time frames will always produce the most reliable tendency lines, and so start there and work your manner down
Nigh trend lines y'all come across volition have some overlap from the high or low of a candle, merely what's of import is getting the well-nigh touches possible without cutting through the trunk of a candle
Never try to force a trend line to fit – if information technology doesn't fit the chart then it isn't valid and is therefore not worth having on your nautical chart
A break and retest of a tendency line that had three of more touches can ofttimes mean a reversal in the market and a potential buying or selling opportunity

General FAQ

What is a tendency line?

A trend line is a diagonal support or resistance level on a price chart. It's often used to place support during an uptrend or resistance during a downtrend.

How practice y'all draw trend lines?

Start with a prominent high or depression on a higher time frame such equally the daily. From there, look to see if yous tin can connect a trend line with the subsequent lows (for an uptrend) or highs (for a downtrend).

Is it okay if a trend line cuts through a candlestick?

It's okay if a trend line cuts through a small role of the upper or lower wick on a candlestick. Notwithstanding, equally a general rule, a trend line should not cutting through the body of a candlestick.

Now I've Got a Question For Y'all...

Are you fix to brainstorm using these techniques in your trading?

Then you definitely want to download thefreeForex trend lines PDF that I just put together.

It contains the four keys to drawing these levels accurately. I've also included examples so you can see exactly how I apply trend lines in my trading.

How to Draw Support and Resistance Trend Lines TUTORIAL