Trend lines are a form of technical analysis and if used correctly can have rewarding results.
How to Draw Trend Lines
The trend lines are drawn alongside the price changes. You would draw a line under a price change that is going up which is called an uptrend. You would also draw a line on top of a price change if it is going down which is called a downtrend.
So with that said you simply have to identify these areas to create the trend lines. Here is an example to help you out.
The three trends you need to remember are
- Sideways trend
- If the forex trend line is very steep, it has a chance to break
- If they do not fit, don’t try and force it!
Channel lines are simply adding a parallel line to a uptrend or a downtrend. This creates a channel.
These channels are another tool to find good places to buy and sell. The top and the bottom of these channels show potential areas of support or resistance.
All you have to do is draw a parallel line with the uptrend or the downtrend. When this line hits a peak or valley you stop it.
List of Channels
- Ascending channel
- Descending channel
- Horizontal channel
- The trend lines must be parallel to each other
- The top of a channel is a sell zone and the bottom of a channel is a buy zone
- Same goes for channel lines, don’t force a channel
Trading with Trend Lines and Channel Lines
Since we learned what trend lines and channel lines are, let’s figure out how to use them while trading. Basically there are two things called the bounce and the break.
What is the Bounce?
The bounce is trading support and resistance levels right after a bounce.
What you do is wait for it to bounce instead of selling or buying right at the start. Since you are doing this you avoid any sneaky things that can lose you money.
The break is when support and resistance levels go down. There are two ways to approach this. You can buy or sell as soon as the price passes through a support or resistance zone. Or you can be patient and wait for the price to bounce again.
Next we will be moving on to candlesticks and what they are all about. After that we talk more about candlesticks! On to the next lesson!