How to trade on trend lines on forex

Among the many trading strategies on the financial and commodity markets, the main one is still the strategy of trading along the trend, namely trend lines. This is the most simple and understandable strategy for most traders. It was relevant many years ago, is still relevant today, and will be relevant in the foreseeable future because the biggest profit with minimal risk can be obtained only by opening a position in a trend.

How to draw and trade on trend lines? You will learn about this in the next few articles.

What is a Trend Line?

The answer to this question is very simple and complex at the same time. After identifying the direction of the current trend, it is necessary to draw a line to the lows if it is an uptrend, or to the highs if it is a downtrend. In other words, a line drawn at support levels is a trend line in an uptrend, while a line drawn at resistance levels is a downtrend line. In general, everything is simple.

The difficulty is that a beginner trader can not always correctly identify the trend and, therefore, draw the right line, which, of course, leads to an erroneous decision and losses as a result of an unsuccessful transaction.

What is a support line?

On the EURUSD chart, we see a pronounced uptrend. We have drawn a line (in blue), which clearly shows the direction of the trend and is an uptrend line of support.

There is a rule, according to which a trend line, to be valid, must be drawn through at least three lower or upper points, namely support or resistance levels.

Thus in the example above, there is a valid trend line, confirmed by several touches of the price chart.

What is a resistance line?

The example above shows the downtrend in USDCHF. Here the trend line is drawn at the highest points, namely resistance levels, and clearly shows the direction of the current trend. Even after three touches of the upper price chart points on the pullback, the trend line already could be considered confirmed, and the trader could plan a trade deal to sell the asset.

It should be noted, and this is well known to professional traders, that the price chart does not always clearly touch the support or resistance line on a pullback. As the trend develops, bears or bulls will continually try to take control, and they may or may not be as active. So the price may either miss the trend line or go over the trend line on a false breakout.

Thus, beginner traders should not wait for exact touches of the trend line, otherwise, instead of becoming traders, they can become "long-waiters", and this is unlikely to bring them any income. On the other hand, the skills of "waiting" can be useful for some other activity or job, but these articles will not give any hints on where and how to apply these skills.

In the next article, we will consider how to draw a trend line correctly.

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