Principles of How Do You Draw Forex Trendlines?
To draw forex trend line forex traders should use forex candlesticks charts
- The points that are used to plot the trend lines are points that are along the lows of the forex price bars in an upward moving forex market. An upward forex trend move is defined by higher highs and higher lows on the forex price chart.
- The points that are used to plot the trend lines are along the highs of the price bars in a downward moving forex market. A downward trend move is defined by lower highs and lower lows on the forex price chart.
- The points that are used to draw forex trend lines are extremes points - the high or the low forex price. These forex price extremes are important because a forex price close beyond these extreme forex price points is interpreted as a forex trading signal that the trend direction might be changing. This is analyzed as entry forex signal or an exit forex signal.
- The more often a forex trend line is tested (touched) by the forex price but it is not broken, then the more powerful the forex trading signal of this trend line.
There are two main forex technical analysis techniques of trading this forex trend line setup:
- The Forex Trend Line Bounce
- The Forex Trend Line Break
Technical Analysis Methods of Forex Trend Lines
Forex Trend Line Bounce
The forex trend line bounce is interpreted as a forex trend continuation signal. Forex trend line bounce is when the price bounces off the trend line to continue moving in the same direction of the trend line.
- In an upward forex trend - the forex price will bounce upward after hitting this upwards trend line level which is the area of forex price support region.
- In a downwards forex trend - the forex price will bounce downwards after hitting this downward trend line level which is the area of forex price resistance region.
Forex Trend Line Break
The forex trend line break - the trendline break is a reversal forex trading signal where the price goes through the trend line and starts moving in the opposite direction to that of the forex trend.
When a forex upwards trend line is broken - the forex market sentiment reverses & becomes bearish
When a forex downwards trend is broken - the forex market sentiment reverses & becomes bullish.
For very strong forex trends, after a forex trend line break signal, the forex price will consolidate for some time before heading in the opposite direction. For short term forex trends then this trend-line break reversal signal will mean forex price may reverse immediately after this forex trend-line break signal.
Forex trend line bounce and forex trend-line break are used in forex technical analysis based on technical analysis theory that these trend line levels represent support and resistance levels for the forex price movement.
Entry, Exit and Setting stops:
Forex trend line trading method is used to determine entry and exit points for forex trades, protective stop loss orders are placed just above or below these trend lines after forex trades are opened using forex trend line technical analysis methods.
The forex trend line bounce signal is a low risk entry forex trading method used by traders to place entry forex trades after forex price has retraced and is now bounced of a forex trend line and is now moving in direction of the trend. Forex trades are opened along these trend line levels and a stop loss orders placed just above or below these trend lines.
The forex trend-line break signal is an indicator of possible forex trend reversal. When a forex trend line is broken the forex price will start moving in the opposite direction. This forex trend-line break signal generates an early exit forex trading signal for forex traders to exit their open forex trades and take profit for these forex trades. When there a penetration of these trend line levels - forex trend-line break - this is a forex signal that the forex price can start moving in the opposite direction to that of the current forex trend.
Unlike other forex technical analysis indicators there is no formula used to calculate forex trend lines, this forex trend line formation is drawn between two chart points on the forex price chart.
Principles of How Do You Draw Forex Trend Lines? - How Do I Analyze Forex Trend Line Bounce?
