Forex Trend Lines
Sometimes you can see a violation of the picture of an uptrend when the stock yen does not reach a higher peak or when it “falls” into a lower trough. Moreover, the diagram may encounter several such outliers, deeper depressions, the appearance of which, however, only indicates the resumption of a pronounced upward trend. When planning your trading strategy, you should anticipate the possible occurrence of such anomalies. Nevertheless, you will need tools to help you determine whether this trend will continue in the future or it has already reached its end.
Drawing Forex Trend Lines, Reflecting Support
Trend lines are slightly below the trend itself. Like the support lines, the trend lines show areas of support for the trading range, which can be used to initialize signals about short-term trading while you are tracking a trend.
If you still remember the days when you studied geometry at school, you probably did not forget that any line is determined by its two points.When drawing a trend line, the main problem is to choose the right two points. A trend line can be drawn, for example, so that it touches two or more depressions, as shown in 10.3. Alternatively, the trend line can be drawn according to the lowest prices at the close of trading between these troughs.
Unfortunately, the science of conducting trend lines is not among the exact sciences. Among experts there is no consensus about where and how to draw these lines. Generally speaking, you are unlikely to find two traders who will draw the same trend lines on the chart for the same stock. Moreover, no matter how hard you try, you are unlikely to achieve a trend line so that it touches all the important troughs on the chart.
Trend lines are drawn in such a way that they correspond to historical data. Given the way in which the trend line is drawn, it should not be surprising that the trend itself lies slightly above the trend line. However, the question of whether this trend line represents an actual trend and whether it can generate reliable trading signals is constantly questioned.
In this case, we have to deal with many variables. You can, for example, draw a trend line on a traditional price scale, but such a trend line will be very different from a trend line drawn on a logarithmic or semi-log scale that reflects percentage price changes. It is difficult to say in advance which option is better. In addition, trend lines are often based on the oldest historical data, while more recent data may be more suitable for generating trading signals. That is why we strongly recommend constantly questioning your information and regularly updating your trend line.
If the price bar falls below the trend line, this can raise doubts, because on the one hand, it can signal the completion of the corresponding trend, and on the other hand, this may mean that you need to correct your trend line several times. Unfortunately, when the stock price is below the trend line at the close of trading, it is usually very difficult to say whether this penetration means the completion of a corresponding trend or,Perhaps this only indicates the need to correct the trend line so that it corresponds to the most recent stock price data.
An alternative method of holding the trend line allows to somewhat reduce this uncertainty. Instead of holding the trend line from left to right, the trend line can be drawn in the opposite direction - from right to left. Using the two most recent dips in the trend, draw a trend line in the opposite direction as long as it makes sense, and then continue this trend line to the right. This approach has two advantages: the slope of the trend line more accurately corresponds to the latest data on trading, which, as a rule, is more relevant for your trading decisions; You will come up with the idea of regularly adjusting your trend lines based on the most recent data.
The channel is used by traders to identify potential entry and exit points during the implementation of a trend. The channel line is formed when a line parallel to the trend line is drawn through the top of the trend.This top line of the channel is similar to the resistance line in the trading range. After the top line of the channel is drawn, the trend line becomes the bottom line of the channel for most traders.