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Monday, 18 December 2017 02:05

HOW TO IDENTIFY AND USE TREND LINES IN FOREX TRADING?

A trend in Forex refers to the price direction often seen on charts and they are the most common form of technical analysis in Forex trading.

Trend lines can be used as support and resistance although they are often seen as oblique in uptrend and downtrend. The more the price tests the trend line successfully, the better it is because it indicates that sellers or buyers tried to break the direction of the price but have failed. Hence, the price extends its original direction offering traders chances to score more pips. 

Note, a trend line can be drawn on all time frames including one minute, and they can last for hours, days, weeks, and even months. The higher the time frame, the stronger the trend line is. Logically, a daily trend line is much stronger than an hourly trend line. 

There are three types of trends: uptrend, downtrend, and sideways ranging trend. 

Uptrend:

As the word implies, an uptrend means that prices are in a continuous rising direction with higher lows. In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys). You can also notice that price action in an uptrend is clocking higher prices and lower highs. This rule in conditional for an uptrend line to be drawn and used successfully. When market is in an uptrend trajectory, it indicates a heavy demand for the currency, commodity, stock, etc... And sellers tried to push the price lower but they have failed.

In the picture below (1), we can notice how an uptrend line was located. First U.S Dollar Index or DXY tested the line at B, then C, D, E, F. The more the price tests the line successfully, the stronger the uptrend becomes. Finally at point G, DXY tested the line twice, first time with rejection, second time the Dollar Index closed below the uptrend line by a daily session which brought more down action later on.

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