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Best Way To Draw Trend Lines
I’m often asked regarding the best way to draw trend lines and how to use them. While it is an essential technical indication, you need to understand that this is not an exact science. There is no one right and perfect way to do it. In this post i would like to address a few points you should consider regarding trend lines.
What is a Trend Line?
Technical analysis is built on the assumption that prices often trend. Trend Lines are an important technical tool that used to identify and confirm trends in the Foreign Exchange market. A trend line is drawn as a straight line that connects two or more price levels and then extends further to act as a region of support or resistance. The purpose of drawing trend lines is to predict and/or identify where a possible change in trend may take place.
Drawing Trend Lines – a Subjective Viewpoint
As i said before, drawing trend lines is not a science. It’s an art that may take some time to master. Everyone has their own unique way of drawing a trend line.Technical signals that indicated by various Forex tools are very subjective. So, traders are entirely free to choose what points to be used to create the line.
Different Ways of Plotting a Trend Line
Traders may never agree to use the same levels in different lines, and some will only connect the closing prices, while others may use a mix of open, close and high prices. What you should note, is that regardless of the exact price levels being connected, you should try to get the most influential line. The strongest trend lines considered to be the ones which their region has been reached the most times by the price action.
Up-trend and Down-trend Lines
In general, an upward sloping trend line is used to connect prices that act as support, when the given asset is trending upward. It means that an upward sloping trend line is drawn below the price and connects either a period of low levels or a series of closing prices. Conversely, a downward sloping trend line is typically used to connect a period of highs that act as resistance while the particular asset is trending downward. The trend lines tendency is to proceed in the same direction, so use it until proven otherwise. However note that once trend lines are violated they usually change their roles. The up trend line become a line of resistance instead of support, and vice versa.