How to Draw Trend Lines & Channels on Charts

Sometimes support and resistances are formed diagonally in a similar way like a staircase. This forms a trend which is a sustained movement in one direction either upward or downwards.

A trend line depicts the points of support and resistance for the price, depending on the direction of the market. For an upward moving market trend - trend line will shows the points of support and for a downward moving market trend - trend line will show the areas of resistance - Forex trend lines are mainly used by many traders to determine these resistance and support levels on charts.

A Trend line is a slanting straight line that connects two or more price points and then extends into the future to act as a level of support or resistance. There are 2 types of trend lines: upward trend line and downward trend line. Forex trend line is an aspect of technical analysis that uses line studies to try and predict where the next price move will head to. A trader must know how to draw and interpret signals generated by this trend line tool.

The basis of this analysis is based upon the idea that markets move in trends. Trend lines are used to show three things.

• The general direction of the market - up or down.
• The strength of the current trend - and
• Where future support & resistance will be likely located

If trend lines forms in a certain direction then the market usually moves in that direction for a period of time until a time when this trendline is broken.

Drawing these trendlines on a chart portrays the general trend of the market which can either be upward or down-wards.

Shown Below is example of how to draw these trend lines on charts

Course: How to Draw Up-wards Trend Line & Trade Upwards Trend Move

Course: How to Draw Downward Trend Line and Trade Downward Trend Move

The MT4 software provides charting tools for drawing these trend lines on charts. To draw trend lines onto a chart, traders can use the tools provided on the MetaTrader 4 software that is shown below.

To draw trendlines on a chart just click the MT4 Draw Trend Line Tools as shown above on the MetaTrader 4 platform technical analysis software and select point A where you want to start plotting the trend line & then point B where you want the trend line to touch. You can also right click in trend line & on properties option choose option to extend ray by checking 'ray check box', if you do not want to extend the trend line, then untick this option in your MetaTrader 4 software. You can also change other trend line properties such as color & width on this property pop-up window of the trend line properties. You can download MT4 software and learn trend line analysis with it.

trend is your friend. Is a popular saying among traders because you should never go against it. This is most reliable method to trade because once currencies start to move in one direction they can move in that particular direction for quite some time - therefore using this trend method presents opportunity to make profits from the market.

Principles of How to Draw Trendlines

1. Use candle charts

2. The points used to draw the trend line are along the lows of the price bars in a rising market. An upward bullish trend move is defined by higher highs & higher lows.
3. The points used to draw the trend line are along the highs of the price bars in a falling market. A downward bearish trend move is defined by lower highs & lower lows.
4. The points used to draw trend lines are extremes points - the high or the low price. These extremes are important because a close beyond the extreme tells investors the trend of the currency pair may be changing. This is an entry or an exit signal.
5. The more often a trend line is hit but it is not broken, the more powerful its signal.

There are two main ways of trading this trend line analysis set-up:

1. The Trend Line Bounce - Trend Line Bounce
2. The Trend Line Break - Trend Line Break

Technical Analysis Methods of Trendlines

The trend line bounce is a continuation signal where price bounces off this trend line to continue moving in the same direction. In a downward trend, the market will bounce downward after hitting this trend line level which is the resistance level. In an upward trend, the market will bounce upward after hitting this trend line level which is the support level.

The trend line break is a reversal signal where the market moves through the trend line and starts moving in the opposite market direction. When a up trend is broken then sentiment of the market reverses & becomes bearish and when a down trend is broken then the market sentiment reverses & becomes bullish.

For very strong trends, after this trend line break signal, the price will consolidate for some time before moving in the opposite market direction. For short term trends then this trendline break signal will mean price might reverse immediately.

In trading, both the trend line bounce and the trendline break that are used in analysis charts are based upon these trend line levels being support & resistance levels.

Entry, Exit & Setting stops:

This trend line method is used to determine good entry and exit points, protective stops are placed just above or below these trend lines. The trend line bounce is a low-risk entry method used by traders to place entry trades after price has retraced. Trades are setup along these trend line levels and a stop loss placed just above or below these trend lines.

The trend line break is a crucial technical indicator of possible trend reversal. When the trend line is broken the price starts move in the opposite direction. This provides an early exit signal for traders to exit their open trades and take profits. When there a penetration of these trend line levels, it's a signal that the price can start moving in opposite market direction.

Unlike other analysis indicators there is no formula used to calculate the trend line, this trend line formation is just drawn between two chart points on the chart.