A trend line has 2 characteristics:
- A minimum of 2 intersections with the price.
- Bias (the line is not horizontal).
The more times the price touches the trend line, the stronger this trend is. Pay attention to the angle of the trend line. If it is less than 30 degrees, the trend is very steep and unstable. It is best when the angle of the trend exceeds 45 degrees. In other words, the second point through which the line we draw must pass is 20-30 sails away from the first.
Trendlines can be used at any time interval, but it is best if the range on the chart is greater than M15.
Sometimes you can clone and move the trend line so that the cloned line is parallel to the first and limits the trend on the other side and so one line crosses the peer’s maxima and the other connects its maxima. This is called a trend channel.
Note that the main line during a bullish trend is one that connects the minima (bullion line). In a downtrend, the focus is on the line that connects the price maxima (resistance line). Channels help traders target a trend.
Trade Trends Logic
During the up / down trend, it is recommended to open positions in the trend direction. As traders say, a trend is your friend. In other words, if the pair reaches the support line during a bullish trend, chances are that it will suffer an upward retreat and will head for resistance, so the trend line support is a good place to open bullish positions . Buying on a bullish trend and selling on a falling trend is called trading trends.
The goal is to get into the trend at an early stage in order to get maximum profits by trading it.
Course of action
- Determine the trend with the help of technical indicators and price action.
- Plan entry: Buying on backstage is less risky than buying on resistance break.
- Limit losses. For example, place the stop below the highest previous minimum.
- Determine the target: Take Profit should exceed Stop Loss.
Remember that trading against the trend is riskier and requires professional skills and extensive Forex experience.
How do we know if the trend line is broken?
If the currency pair was below the support line in a bullish trend, it is best if the break is confirmed by one of the following conditions:
- Price closes 1% below broken line trend support.
- The volume – if the data is available – is above average.
- The following candles close above the line.
- After the break to the falling side, there is a crowding in the intraday chart back to the broken line, which is successfully exercising the resistance role. Such agglomerations offer a stronger sell signal if they are formed over a period of time in which the volume is below average.
- The size of the break for the drop side is greater than the average ATR reading. The ATR indicator measures the volatility during a number of last candles.
Risk management in trade trends
- Trading in trends is a bet that price will continue to move in a certain direction. If the bet does not work, there is no reason to continue this business. Therefore, trend traders generally have very tight (small) Stop Loss orders.
- You can quickly move the Stop Loss to break even.
- You can use scaling in (in the early stages) and scaling out (in the final stages of the trend).
- The risk / reward ratio should start from 1: 2.
Important Tips for Trading Trends
– Draw trend lines.
– Analyze the trend at various time intervals.
– Monitor the overbought / oversold condition of the market.
– Do not be in a hurry to open a position. Wait for an appropriate entry time (see the “Course of Action” section above).
– Look for patterns: graphic, candlestick.
– Do not change your Take Profit order.
– Use Trailing Stop based on chart history.