What is a Trend Line and How to Draw a Trend Line?
A trend line is a line in Forex trading that shows how the current price of stocks heads to. It is drawn slightly under pivot lows or above the pivot highs. In the layman’s language, a trend line is the line of a trend which defines it.
Uses of a trend line
- The line comes in handy when showing support and resistance irrespective of the time frame.
- Spotting where there are bottoms and tops in the Forex market
Features of a trend line
It’s impossible to draw something which you have no idea about. These characteristics are there to show you whether the trend line you are drawing is right or you need to do some necessary adjustments.
- A trend line is diagonal. Having it as a horizontal line isn’t applicable.
- The trend lines come in two types. That is, a rising trend line for the case of the uptrend, and a falling trend line where there is a downtrend.
If a price breaks the rising trend line, it means that the market goes on a downtrend. On the contrary, if the market price breaks the falling trend line, it is sure that the market has found its way into the uptrend direction.
Tips on drawing a trend line
You can draw the two types of trend lines by following these three tips. Find below the tips, how you can draw each type independently.
Have a Minimum of Three Points on a price chart
(Hint: the more connecting points… the strong the trend line)
This is the first step ideal to start you off. The points can go up to five or even a little more depending on how the analyst stages it, but can get lesser than two. After getting your points, you should identify your second swing low or high. Base the ground of your trend drawing on the maximum or minimum points in the series types of the trend. Be sure that the spacing between your points is reasonable. Under normal circumstances, the points should not be too way closer to each other.
Choose a time frame that works best for you
(Hint: Higher Timeframes are ALWAYS more Reliable)
You are at liberty to label your time frame the way you like. This freedom comes due to the fact that trends are identifiable without incorporating the time at which the time spacing is done on the price chart. However, this is a tip to help you get the most out of your drawn trend line. To get trend lines that you can rely upon, higher time frames will always do you justice. For instance, if you draw a trend line and it extends for the following two months, it can in no way be compared with a one that has existed for a period of three weeks. That way, if there are uncertainties in price action, the trend is strong enough to triumph over some more time.
Identify the the Trends – Uptrend or Downtrend
There are two series types of these. That is the bullish and the bearish. To draw a trend line, make sure the series type matches the following trend. In explanation, let’s assume you are drawing the bearish type. You have to use the lower highs or lower lows to come up with a trendy trend line. If you are drawing the bullish trend, be sure to identify the higher highs and higher lows series. Irrespective of the series, unreliability on the trend line takes its course when you squeeze any line to fit in the chart. Getting the best results will be a dream.
Drawing a Up Trend Line
This line gives the trader watchfulness where the market takes an uptrend direction. You can only draw the rising trend line slightly below the market price. To draw this line, have let’s say two points. Determine two swing bottoms and connect the two points. The line can act as the price support level if the price moves downwards of the rising trend line. The line starts its actual work the moment when you see it hitting that price level and going up once more.
Drawing a Down Trend Line
You can use a falling trend line where there is downtrend. To draw the line, you have to note that it is drawn above the prevalent market price. To draw the line, have two points in your trend chart. Now, determine any two swing peaks. Now, join the two points using a diagonal line. To use this trend line, you may come across circumstances whereby, the stock price goes to the direction up to the falling trend line. That trend line is the barrier which can help you to see the price hitting the line and getting back.
Trend lines, if drawn perfectly are there to help you garner super buying and selling opportunities. If you consider drawing them in longer time frames, relying on them will prove positive results. That way, you will buy at the bottom and sell at the top, giving you more profits.
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