Trend Lines ~ forex trading hours us
Trend lines provide a projection of support and resistance that links past behavior into the future. A trend line is used to map whether there is consistency in highs and lows. While simple in its construction, knowing the trend is a basic foundation for trading forex. Once a trend is identified, detecting a potential change in the trend becomes a focus for the trader because trading at the break of a trend or the failure to break a trend line is a high probable point of success. Picture 1 shows a downtrend in place and the price twice coming to the trend line, and then failing to stay above. Although the price actually created a high above it (where the arrow points), it failed to follow with another candle at that high point. Thereafter, the return of the price under the trend line and the resumption of the downtrend would be recognized by an experienced trader as a sell condition.
The main benefit of trading with a trend is one of probabilities. An upward trend presents a greater number of buying opportunities to the trader. It doesn’t mean there are no good selling or contratrend opportunities. We can see in the charts that there were countertrend moves, but much fewer than trend-aligned moves. A prudent trader will seek opportunities that provide a higher probability of success. Trading with a trend meets this condition. The question arises: Which trend should the trader align himself with—the week trend, day trend, 4-hour trend, and so on?
Each choice has advantages and disadvantages. The basic trade-off is the increase in price volatility and range when a larger trend time frame is selected. Trading in the direction of the weekly trend means that a trader will see periods of time and maybe days when the price is moving the other way, threatening losses. But in this case, if the day trends are also moving in the same direction as the weekly trends, it represents more confidence that the trend is stable. For intraday traders trading off a 15-minute chart, when the 15-minute trend direction is aligned with the 4-hour trend direction and also confirmed by the 5-minute trend direction, there is a high level of robustness to the trend. The concept of three time zones confirming trading decisions will apply in many areas.
Simply, connecting either two (or more) swing lows or two (or more) swing highs, see picture 2.
Important, a third high/low is needed to truly solidify a trendline but this condition is rare.
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| Price Tests Trends and Fails. |
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How to draw a trend line |
Trend Lines Quiz
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