The most common form of technical analysis in forex trading are probably the Trend Lines. They are also possibly one of the most underused ones.
If drawn right, they can be as correct as any other technique. Unluckily, many forex traders don’t pull them right or try to make the line fit the market, instead they do it the other way around.
In their most simple form, an uptrend line is drawn alongside the bottom of simply recognizable support areas. In a downtrend, the trend line is drawn alongside the top of easily recognizable resistance areas.
It is easy to draw forex trend lines correctly, all you have to do is find two main tops or bottoms and link them.
Types of trends lines
Uptrend (higher lows)
Downtrend (lower highs)
Sideways trends (ranging)
Things to Keep in Mind Using Trend Lines in Forex Trading
- As a minimum, it takes two tops or bottoms to draw a legal trend line, however, it takes three to approve a trend line.
- The STEEPER the trend line you pull, the less consistent it is going to be and the more possible to break.
- Just like horizontal support and resistance levels, trend lines become tougher the more times they are tried.
Remember to never draw trend lines by making them fit the market. The trend line is not a valid one if they do not fit correctly.