Trend line trading is part of many trading techniques and forex systems. It is used to indicate how price has trended in the past and most important to predict movements in the future.
One of the most commonly accepted principles of technical analysis states that the trend once established, has greater odds of continuing than of reversing. Then the most profitable, lowest risk opportunities will come by trading retracement style set-ups in the direction of a confirmed prevailing trend.
On the other hand, a trend cannot persist forever, as such, downtrend evolved over time into up-trends, and then mature up-trends must devolve again into down-trends as the market cycle continues throughout history.
Informational Guide to Advanced Forex Trendline Trading in Meta-Trader 4
There are many different kinds of trend
Trend-lines can be horizontal or vertical and anywhere in between. Generally, it is drawn with a slope to mark even the most modest uptrend or downtrend in the market. Horizontal trend lines are also very popular for showing support and resistance lines at a common price point. It is fairly common that the market can trade wildly around a common price point and do it even over the course of time mt4 indicators. “Round” numbers such as $100.00 or $10.00 are more likely to be a place for a horizontal support or resistance because traders like to use round numbers as entry and exit points.
How Do You Profit From Trend Trading?
There are two methods to trade a trend. In trend line trading, the first method is to anticipate that price will touch the trend-line and make a rebound, and market move in the prevailing direction of the trend again.
You will open a position in the direction of the possible reversal with a stop above where you think the turning point will occur. Don’t place this order until the reversal has happened. The setting of the stop-loss must fit within your risk management plan.
The second outcome is when price breaks the trend line and this term is usually called break out. Trading break out is a popular strategy in forex trading.
When the market ignores the trend-line and breaks beyond with great strength then a change in the original trend would have occurred. Now, the trader opens a position in the direction of the new trend and sets his stop-loss behind the proceeding line. The stop-loss must also fit within his risk management plan.
The problem with this method of trading is that it is time consuming and trend line trading requires constant monitoring of the markets during active forex trading hours. That means that this style of trading is not suitable for part-time traders who have a day job.