Trendline Definition and How It Works

Trendline Definition and How It Works

From Waqas Ahmad

I'm raising money for a cause I care about, but I need your help to reach my goal! Please become a supporter to follow my progress and share with your friends.

Support this campaign

Subscribe to follow campaign updates!

More Info

As you already know, trend-following is the most effective trading principle because it helps traders follow Sharks movements and collect a series of profits. There is a wide range of Forex trading strategies which ascertain trending conditions very well, however, all of them are based on basic trend-determining rules.

So, why dont we find out what the original method to spot a trend is? Today, we would like to introduce to you the most basic way to define a trend, using manual drawing lines.

What is a trend line?

Being built-in in Metatrader5, technical drawing tools are extremely powerful, enabling financial traders to determine market conditions better than any repainting indicators. You can spot a consolidation, catch up a strong trend, or avoid volatile movements using only manual drawing tools. In this article, we are discussing how to identify trends by manually drawing trend lines, therefore, we will focus on this subject and put aside the methods to spot other market conditions.In order to determine market trends, you need to use the trendline drawing tool. You could do so by clicking on Insert > Lines > Trendline in MT5.To start drawing a trend, a series of highs and lows must be ascertained. You need at least 3 swing peaks and nadirs to validate a trend line.

This is a perfect bullish trend since there are many points lying on the lower trend line. A trend composed of two parallel trend lines is called a trending channel.

How to draw a trend line?

After defining a trending channel, your next work is to benefit from it. Luckily, trends appear in any trading time frames and on any financial assets, including currency pairs.Bullish trading opportunities are present in an uptrend when prices approach the lower trend line and tend to rebound from it.

There are some important entering notes when trading with trend lines:

  • Only one position should be opened at a time;
  • The pump candlestick must be fully close before a signal is confirmed valid;
  • You should only seek for buying signals in a bullish trend, except its broken. Similarly, only selling occasions should be traded in a bearish trend, except its breached;
  • The stop-loss should be put outside the trend line, while the take-profit could be left open. When prices trade towards the expected direction, you should gradually transfer your stop to breakeven.

If you like this strategy, you might also be interested in this Forex Candlestick Patterns

Pros and cons of using trend lines to trade

Pros:

  • Easy-to-use, general-purpose;
  • Generating highly accurate trading opportunities;
  • Enabling traders to maximize potential profits from long trends.

Cons:

  • Requiring a high level of patience;
  • Requiring a proficient technical analysis level.

Conclusion

Trend line is the most valuable thing that every trader looks for. Successfully catching a nice trend, you can earn lots of profits trading it. Of course, using repainting indicators is a good idea, but if you are a fan of price action trading, then using manual drawing trend lines will provide you with more accurate signals. Anyway, never forget to apply risk controlling and psychology managing methods when trading because no trader can survive market fluctuations without stably maintaining his balance and his cold head.

Campaign Wall

Join the Conversation

Sign in with your Facebook account or