Trend lines are probably the most simple form of technical analysis for forex traders. But also one of the most important. Remember, simple is often better! There is no point using complex instruments to predict price movments, if you haven´t paid good attention to the trend. Trends account for the most famous phrase in trading markets: The Trend is Your Friend.
Well, we´re sorry to tell you that it´s not always your friend (The Trend that is), but more than often it is. It´s just that some days The Trend has grumpy days.
The first thing you need to know, is how to draw a trend. There are plenty of online tools to help you do this nowadays, but it is as well to know the underlying theory.
An uptrend line is drawn so that it touches the low points (support points) of your chart (the valleys to use the geography metaphor).
A downtrend links the top of your chart highs- the resistance points.
The first thing you must do is to isolate two major peaks or troughs and link them.
Types of Trends
There are 3 Trend Types
Trending Sideways (Ranging)
Key Points to Remember:
- You can´t confirm a trend with just 2 points- you need at least 3.
- The faster your line trends upwards or downwards, the more volatile the trend, and the more likely it is to switch direction.
- The trend will be highly dependent on your chart timescale. For example, you can have a strong downward trend on a 15 minute chart, but switch to a 4 hour chart and the trend might be up over the longer period. The shorter your time frame, the more you zoom in and the more you see the market "noise"