How To Trade With Trend Lines For Beginners

For better long-term results with your forex trading, here is a simple way to find and draw trend lines:

1. Open a clean chart without any analysis or indicators on it
2. Find the highest price point on the chart
3. Click the line drawing icon on this point and drag it to the end of the chart
4. Move it down slowly until the line touches two (or more) highs

Below is an example of trend lines drawn on a Candlestick chart.

What is most important is that the line touches at least three points (including the origin). The more points the line touches, the stronger it is. However, three points is a minimum.

Trend lines have several different uses. Read on for how you can utilise these tools to assist with your trading strategies.

If you have a well-established trend with lines at the top and bottom that are roughly parallel, you can take advantage of the likelihood that it will continue. As the bottom trend line approaches, you can look for signals in your chart or indicator that the market will reverse and move toward the upper trend line.

You can open a long position when the indicators give you bullish signals. You will expect the market to move upward toward the top trend line. As it approaches this upper level, you can look for an exit point and take the profits.

If you trade CFDs, you can also profit when the market reaches the upper trend line. This can be achieved by opening a short position when the market gives you bearish signals. You expect that the price will move downward toward the lower trend line. Once it gets close to this level, you can close your position.

Many traders want to learn how to trade trendline breakout situations, as breakouts can sometimes lead to significant profits.

If the market has been honouring the trend by reversing it when it gets close to the top or bottom line, most traders will expect it to continue. It takes a significant event for the market to break out of its established range.

Breakouts occur when the market closes above the upper trend line or below the lower trend. A spike in trading volume usually accompanies the breaking of this barrier. If you are determining what event is causing the breakout, you confirm it by viewing the trading volume for the period when the breakout occurs.

Almost all traders consider the move a breakout if the bar or candle for the period closes above the trend line.

If you trade CFDs, you can open a long position when you see an upper-level breakout or a short position if the market breaks out below a bottom-trend line.

Markets do not move linearly. Instead, they are jagged and tend to move two steps forward and one step backwards.

Put simply, just because a trader has found a trendline, it doesn’t mean the market is moving in that direction overall. The overall trend may be the opposite, and the move discovered might be a counter-trend, a consolidatory move within the main trend.