You never thought you would find a place for your artistic skills in forex trading, did you? Drawing trend lines is one of the most essential skills you’d need to master as a technical analyst. Not only it will help you identify the general market movement, but will also come handy in setting buy and sell limit orders. All’n’all, it comes handy in the second point of the IDDA.
The Art of Drawing Trend Lines
Drawing trend lines is an art. And just as with any other type of art, everyone has his own unique opinion on them! There is no perfect way to draw trend lines, but if you have an artistic eye, you usually won’t miss a strong trend.
To draw a trend line, once you have casually identified a trend with your naked eyes, you simply have to click on the “trend-line instrument” on your trading platform and connect two or more major valleys (bottoms) or two or more major peaks (tops) as shown.
For newbies, identifying valleys and peaks may be easier on line charts, but with just a little bit of practice, you will be able to see any mountain, hill, or lake on next-generation charts crystal clear.
Drawing Trend Lines – Uptrend
REMEMBER:
1) To draw an UPTREND, connect the valleys (higher lows)
2) To draw a DOWNTREND, connect the peaks (lower highs)
3) You can identify NO TRENDS, when you connect either the peaks or the valleys, and the lines turn out to be horizontal or sideways
Do not ever let a trend line cross through prices. Drawing trend lines by forcing them to fit the market is not cool either!
Now you may ask, “What if the prices break the trend line after I draw it?”
The answer is simple: draw another one! You can have several trend lines on a single chart.
Let the art touch the chart. Look at all the fine lines!
Once you get comfortable with the waves, you can easily surf the trend lines under any circumstances and nail the next price action by identifying support and resistance. We will get into that in a little bit.
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