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Trend Lines  |  2461 views  | Category: Support and Resistance  |



Trend lines are probably the most common form of technical analysis in forex trading, and If drawn correctly, they can be as accurate as any other method.

Unfortunately, most forex traders don’t draw them correctly, or they try to make the line fit the market instead of the other way around.

Trend Lines

In their most basic form, an Uptrend line is drawn along the bottom of identifiable support areas (valleys) and is known as an Ascending Trend Line.

In a Downtrend, the trend line is drawn along the top of identifiable resistance areas (peaks) and is known as a Descending Trend Line.

Ascending Trend Line

An ascending trend line is a chart pattern containing two or more higher lows that can be connected with a straight line.

It is a bullish pattern created by connecting two or more lows, with each successive low higher than the previous low.

This creates an upward-sloping trend line

Ascending Trend Line

An ascending trend line is also known as an “uptrend line“.

Since technical analysis is built on the assumption that prices trend, the use of trend lines is important for both identifying and confirming trends.

An ascending trend line acts as support and indicates that demand (more buyers than sellers) is increasing even as the price rises.

A rising price combined with increasing demand is very bullish and shows really strong buying pressure.

As long as the price action stays above this line, it is a bullish trend.

Price can bounce as the trend line acts as support.

Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal.

The more points there are to connect, the stronger a trend line becomes.

The strength of the trend line is also determined by how many market participants recognize the trend line.

If a lot of the market acknowledges the same trend line that you see, then the trend line becomes self-fulfilling.

As long as prices remain above the trend line, the uptrend is considered solid and intact.

break below the ascending trend line indicates that buyer demand has weakened and a change in trend could be imminent.

If the price breaks through the ascending trend line, you can short the breakdown but be aware of fakeouts (false breakouts) though.

 

Descending Trend Line

descending trend line is a chart pattern containing two or more lower highs that can be connected with a straight line that has a negative slope.

It is a bearish pattern created by connecting two or more highs, with each successive high lower than the previous low.

This creates a downward-sloping trend line

Descending Trend Line

 

A descending trend line is also known as a “downtrend line“.

Since technical analysis is built on the assumption that prices trend, the use of trend lines is important for both identifying and confirming trends.

A descending trend line acts as resistance and indicates that supply (more sellers than buyers) is increasing even as the price falls.

A falling price combined with increasing supply is very bearish and shows really strong selling pressure.

As long as the price action stays below this line, it is a bearish trend.

Price can pullback as the trend line acts as resistance.

Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal.

The more points there are to connect, the stronger a trend line becomes.

The strength of the trend line is also determined by how many market participants recognize the trend line.

If a lot of the market acknowledges the same trend line that you see, then the trend line becomes self-fulfilling.

As long as prices remain below the trend line, the downtrend is considered solid and intact.

break above the descending trend line indicates that buyer demand has increased and a change in trend could be imminent.

If the price breaks through the descending trend line, you can go long the breakout but be aware of fakeouts (false breakouts) though.

 

How do you draw trend lines?

To draw forex trend lines properly, all you have to do is locate two major tops or bottoms and connect them.

 

Forex trend line examples: uptrends, downtrends, and sideways trends

Types of Trends

There are three types of trends:

  1. Uptrend (higher lows)
  2. Downtrend (lower highs)
  3. Sideways trend (ranging)

 

Here are some important things to remember using trend lines in forex trading:

It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.

The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.

Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.

And most importantly, DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn’t a valid one!


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What is Support & Resistance?

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Support and resistance are one of the most widely used concepts in trading.

The support and resistance are specific price points on a chart expected to attract the maximum amount of either buying or selling.

The support price is a price at which one can expect more buyers than sellers. Likewise, the resistance price is a price at which one can expect more sellers than buyers.

Support and Resistance

If a bull market when the price moves up and then pulls back, the highest point reached before it pulled back is now resistance.

Resistance levels indicate where there will be a surplus of sellers.

When the price continues up again, the lowest point reached before it started back is now support.

Support levels indicate where there will be a surplus of buyers.

In this way, resistance and support are continually formed as the price moves up and down over time.

The reverse is true during a downtrend.

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Channels

|  2125 views  |  Category: Support and Resistance  |

If we take a trend line and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a “channel”.

Channels are just another tool in technical analysis that can be used to determine good places to buy or sell.

The upper trend line marks resistance and the lower trend line marks support. So both the tops and bottoms of channels represent potential areas of support or resistance.

Trend channels with a negative slope (down) are considered bearish and those with a positive slope (up) are considered bullish.

Trend Channels

To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to a position where it touches the most recent peak. This should be done at the same time you create the trend line.

To create a down (descending) channel, simply draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you create the trend line.

 

When prices hit the LOWER trend line, this may be used as a buying area.

When prices hit the UPPER trend line, this may be used as a selling area.

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