Upward Trend Lines and Channels
An upward trend line is drawn below the pattern by connecting at least two lows. This will draw a line that show the general direction of the market.
The diagram below shows how price moves when it is moving in a bullish market. The price will move upwards forming support levels.
Since the market moves in a zigzag manner traders normally draw a trend line which shows the general upwards direction.
An uptrend occurs when the price makes consecutive higher highs and higher lows. Each high is higher than the previous high- higher high , and each low is higher than the previous low- higher low.
Uptrend lines gain more validity each time price touches but does not penetrate it. An uptrend remains in place until this series of higher highs and higher lows is broken.
A downside penetration of an uptrend line is a technical sell signal, and usually the first indication that an uptrend may soon end.
Drawing a Trend Line
When market moves up it forms higher highs and higher lows forming a bullish market movement. An upward trend line can then be plotted by connecting these higher lows.
To draw this setup we use supports. To draw it correctly two supports are needed. When price touches the line we buy and place stop loss just a few pips below the it. The diagram below shows an example.
The setup will show the general direction of the market as bullish therefore traders will only open buy long trades as long as price is within this setup and within the support levels. These are the levels where if the marketretraces then this points will provide strong supports. This is why many buyer will wait until price retraces downwards and hits these retracements levels to open buy trades. Trades opened at this levels have a high Reward to Risk Ratio with minimum draw down.
In the above setup the trader would have opened buy/long trades form the signals generated at the support1, support2, support3 and these trades would have made a lot of profits with minimum amount of draw-down/retracement.
A channel is drawn by drawing a line that is parallel to the upward trend line and then adjusted to touch the top boundary of the price movement. This then forms a channel and as long as the price stays between these two channels the bullish market movement will continue moving up.
Trading The Channel
This channel is used by traders to show levels where it best to take profits. Forex traders will take some profit once the price touches the upper channel and wait for another retracement before opening a long buy trade again.
MetaTrader 4 Tools For Drawing
The tools to draw these setups on the MT4 are located on the MetaTrader 4 drawing toolbar within the MetaTrader 4, To access this toolbar if it is not activated on your platform, Click in "View" Next to "File" at the top left corner of the MT4 and click View, Then Click on Tool bars, Then Check the "Lines Toolbar" by clicking on it.
Below is the screenshot Image of the MT4 drawing toolbar. To draw one on a trading chart just click on this tool and select the point where you want to draw.
This is one of the technical analysis lesson among the many tutorials on this website located on the navigation menu below, where you will learn how to draw and analyze these setups.