Forex Trading – How to Trade With Trends and Trendlines
The trend is your friend. If you have traded the foreign exchange for any time at all, you have heard or read this saying. You see, the forex trends more than any other market in the world. This is very good for us traders because it means we just need to hang on for the ride, and we will make plenty of money.
Simply put, the market is trending higher if it is making higher highs and higher lows. Conversely, it is trending lower if it is making lower highs and lower lows.
Now, as the market trends, it tends to make highs and lows that can be connected with a single line. Of course, you can connect any two points with a line, so trendlines are more reliable when they connect more than 2 highs or lows without the market exceeded the trendline.
Trendlines are another form of support and resistance. Once the market reaches those lines, it will a) either turn around and go the other way, b) stall at the lines while it determines its next direction or c) blow right through them. No matter how the market reacts, it has just given you some great information to where it will be heading next.
So here is how you trade with trendlines. As the market approaches your line, look for other clues that the market may turn around. You can watch for reversal candlestick patterns, wait for oscillators to hit overbought / oversold territory, or wait for trendlines and price to intersect with other support and resistance.
One more thing – the steeper your trendline, the stronger the trend is. It should be harder for the market to break steeper lines. And just because the market breaks it, don’t completely eliminate the trendline – the market may very well dip back inside it later on.