Technical analysis is the most widely used school of Forex analysis. Many Forex trading strategies are deeply rooted in it while another substantial number at least draws from its precepts. One of the core ideas of technical analysis is the trend. It is the tool that enables technical analysts to detect the strength and direction of the market under different conditions. To delineate trends, you need trend lines.
In fact, most of the top forex trading signals are detected using trend lines. Hence, whether you want to become an expert trader yourself or you just want to understand why our signals are so effective, you should really first learn about them.
Many times, you would have heard “the trend is your friend.” With that, you have been subconsciously wired to believe that by not fighting the opposing resistance of the stubborn wind, you would be able to easily stir your ship to your destination. That is trend. And it gives you the comfort that you are with the majority of the market.
In the Forex market, Trend Riding is a real and effective strategy. Trend riders seek to capture any trend, whether it is going up or down, in order to generate profits. This gives rise to two trend types: uptrend and downtrend. When the market is going up, it is said to be on an uptrend. Conversely, when it is coming down, it is said to be on a downtrend.
Trends are formed every time irrespective of the time frame you are looking at – be it hourly, daily, or weekly. In fact, different trends exist on different time frames. Based on time measurement, trends can also be classified into three types: primary (long-term), intermediate (medium-term), and short-term.
The primary trend is the longest. It can be on for up to eight months and even up to two years. The intermediate trend lasts only for a month or eight months, but never longer. Finally, a short-term trend lasts only for days.
Trend lines are an invaluable tool in the trading arsenal of every technical analysis based Forex trader. Apart from helping you detect the direction and strength of the market, trend lines can also help you develop a special level of expertise that you will be able to use to spot entry and stop-loss points which will enable you to make nice gains from time to time.
The good news: they are neither impossible to detect nor hard to draw. Yet, all subsequent technical analysis patterns are based on them. Without trend lines, it will be hard, not impossible though, to discover pivotal market levels and breakouts.
Moreover, it is very important that you know how to stage trends with trend lines. Trends have four stages, and they are:
The nascent stage of a trend is the beginning of it right after the reversal. It has the highest level of uncertainty so it is the stage associated with the highest number of trend failures. Nevertheless, the nascent stage is the stage at which aggressive traders enter the market.
At the fully-charged stage, the trend is already established, with either the bulls or the bears having taken control of the market. The bulls are already confident in the upward direction of the market while the bears are already pushing the prices lower, thereby making no room for uncertainty.
As with biological beings, trends get tired too and die. Their ageing and end stages are those portions whereby traders are getting on the bandwagon, hoping to still be able to get a piece of the action. However, they crumble and lose their staying power. Usually, those stages are the points where the potential for loss tends to be huge.
Trend lines can also show you the weak points where the market can turn. In other words, trend lines can also reveal when the market can move in the opposite direction to create opportunities for you to make some quick bucks. These opportunities are known as breakouts which are some of the Best Trading Signals you will ever get to find.
A breakout can either be bullish or bearish. A bullish breakout signals that the price has started to move up, providing a good opportunity to buy. On the other hand, a bearish breakout indicates that the price has started to move down, providing a good time to sell.
Technical analysis has arguably become the most used trading approach. And rightly so. Why? Because it has proven to be effective again and again. One of its crucial tenets is the trend. But how do you find out the trend? How do you delineate it? That is where the use of trend lines comes in.
With this guide, you have learned how to effectively apply that. At Technical Trading Signals, however, we can, however, do all the hard work for you. All you need do is to subscribe to our signals here.