Trend line trading

Forex trading

TRENDLINE Break out

Fake out

Contents:

How  Forex market moves

What is trend

What is trend line

Characters of trend line

How to draw trend line

Trend line break

Types of trend line break

What is true break out and what is fake out/False breakout

How to identify breakout from fake out

How to measure breakout strength

How forex market moves?

Forex market moves continuously , it is due to imbalance between supply and demand, When more pressure on demand price increases and when more supply than demand price decrease. The upward movement is uptrend and downward movement is down trend. Market takes a pause before next movement it is termed as consolidation phase.

So market moves uptrend à consolidation-à uptrend -àconsolidation--àUptrend--àReverse trend-à downtrend--à consolidation-à downtrend continue----à reverse trend---à up

 Fig:

market structure

What Is trend?

·         It is the direction to which market moves.

·         It always follows nontrend  to trend to nontrend

·         That is trend….>nontrend/consolidation……..>>>trend……..>>>>nontrend.

·         Smallest time frame largest movement of market.

·         Trend starts from non trend/consolidation

·         Trend ends on nontrend

·         Trend are drawn higher high to higher low,  lower high to lower low not high to low/low to high.

·         Upward and downward sloping can define trend

·         Thre more time price touch trend line more strong trend

Types of Trends

There are three types of trends:

• Uptrend (higher lows)
• Downtrend (lower highs)
• Sideways trends (ranging)

What is trend line;

It is the line drawn by Two swing high or swing low or two tops or two bottoms.

It shows the price direction of the market, that is market is going up or down that is up trend or down trend.

See figure

Types of trend line:

·         Internal trend line/Short  term trend line/interior trend line

·         Exterior/External trendline/Intermediate term trend line

·         Long term trend line

See figure

        

How do you draw trend lines?

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

Here are trend lines in action! Look at those waves!

trendline 

Characters of  trend lines:

• 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!

Figure:

Time frame:

1hr time frame trend line is appropriate for intraday trading, For day trader draw trend line on 1hrs chart. It is the main trend line

of the day. 1 hr time frame chart shows the price action of last 2 weeks. Here 15 min chart for trade and 5 min chart for better entry.

4hrs time frame for drawing trend line  is better for day trader. As 4hrs chart shows the price action of last one month. Here 1 hrs time frame chart is for trading and 15 min chart time frame for fine-tuned entry.

Trend strength:

·         It depends on steepness of MA, RSI, MACD

·         Acuteness of MA crossover and separation

·         Parallel of MA

·         Holding 38% retracement is good sign of trend.

·         If the retracement is 50-61 .8% trend become weakens.

·         When MA is flat trend strength is decreased

·         In 1 hr trend line look for support and resistance

 1.       Price analysis

It is done by analyzing candlestick pattern

Bullish

Bearish

Reversal candlesticks

Trend channel:

                Draw  primary trend line and draw secondary trend line parallel to primary line make a trend channel