Trend lines are the most commonly used type of technical analysis in forex trading.
They are also possibly one of the most underutilized. They can be as accurate as any other method if drawn correctly. Unfortunately, most forex traders draw them incorrectly or attempt to make the line match the market rather than the other way around.
An uptrend line is formed along the bottom of plainly recognized support regions in its most basic form (valleys).
This is referred to as an ascending trend line.
The trend line in a decline is formed along the top of plainly recognized resistance points (peaks).
This is referred to as a declining trend line.
How Do You Draw Trend Lines?
To properly construct forex trend lines, simply locate and link two big peaks or bottoms.
What comes next?
Is that the end of it?
Yes, it’s that easy.
Here are some examples of trend lines in action! Take a look at those waves!
Type of Trends
There are three types of trends:
- 1. Uptrend (higher lows)
- 2. Downtrend (lower highs)
- 3. Sideways trend (ranging)
Here are some factors to keep in mind while utilizing trend lines in forex trading:
A good trend line requires at least two tops or bottoms, but it takes THREE to validate a trend line.
The more STEEPER the trend line, the less trustworthy it will be and the more probable it will break.
Trend lines, like horizontal support and resistance levels, become stronger the more they are tested. Most importantly, NEVER create trend lines by forcing them to conform to the market. If they don’t fit properly, the trend line isn’t genuine!
Next Lesson: What are and How to Use Trend Channels?