How to Draw Trend Lines & Channels on Charts

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

A trend line depicts the points of support & resistance for the market price, based on the direction of 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 identify these resistance and support levels on charts.

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

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

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

If trend lines forms in a certain direction then the market mostly 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 and overall trend of the price which can either be upward or down-wards.

Shown Below is illustration 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 & Trade Downward Trend Move

The MetaTrader 4 platform software provides charting & trading 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 is shown above on the MetaTrader 4 platform software trading analysis software & select point A where you want to start plotting the trend-line & then point B where you want the trend line to touch. You also can right click in trend line & on properties option choose option to extend ray by ticking 'ray check box', if you do not want to extend the trend line, then uncheck this option in your MetaTrader 4 platform software. You also can change other trend line properties like color & width on this property pop-up window of the trend-line properties. You can download MetaTrader 4 software & learn trend line analysis with it.

trend is your friend. Is a popular phrase among investors because you never should 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.

Guidelines of How Do I Draw Trendlines

1. Use candle charts

2. The areas used to draw the trend-line are along the lows of the price bars in a upwards market. An upward bullish market trend move is defined by higher highs and higher lows.
3. The points used to draw the trend-line are along the highs of the price bars in a falling market. A downwards 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 critical because a close beyond the extreme tells traders the trend of the forex pair might be changing. This is an entry or an exit trading 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 - Trendline Break

Technical Analysis Methods of Trend-Lines

The trend-line bounce is a continuation signal where the price bounces off this trend line to continue heading in the same direction. In a downwards trend, the market will bounce downwards 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 in the opposite trend trend trend trend trend trend trend direction. When a up trend is broken then sentiment of the market reverses & becomes bearish and when a down trend is broken then the current market sentiment reverses & becomes bullish.

For strong trends, after this trend-line break signal, the price will consolidate for some time before going in the in the opposite trend trend trend trend trend trend trend trend direction. For short term trends then this trend-line break signal will mean price may reverse immediately.

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

Entry, Exit & Setting stop loss orders:

This trend line method is used to figure out good entry and exit points, protective stop losses are placed just above/below these trend lines. The trend line bounce is a low-risk entry method used by traders to open and place entry trades after price has retraced. Trades are setup along these trend line levels and a stoploss order placed just above/below these trend lines.

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

Unlike other analysis indicators there is no formula used to calculate the trend line, this trend line setup formation is just drawn between 2 chart points on the chart.

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