How to trade with trendlines
How to trade – as we know that Support and Resistance levels I am mostly consider useful technical tools in the Forex market.
So today we are going to focus on drawing trendlines on the chart.
Many Professional Forex traders use these Supoort and Resistance Levels to find out which direction to trade, as well as to establish position exits.
As we remember the key rule that trendlines must connect at least two common points on our chart. Let’s take a look at a few examples.
Above we can see our first example using a weekly chart of the GBPUSD.
The above currency pair is considered in an uptrend as it has moved 2832 pips higher over the course of the last 24 months.
Our first trend line is drawn by connecting a series of ascending low points on our graph, which are circled in green
This line is acting as support since price is expected to act as a floor in this scenario, with price holding at these levels
Once this trendline is drawn, traders will look to take advantage of new higher highs by creating buy orders.
The optimal time to take new long positions in an uptrend occurs when price trades down to support and bounces.
Once prices has touched support but not closed below it, traders may look to establish new buy entries.
When trading an uptrend, traders can also limit risk by establishing stop losses underneath support.
In our next example above we can see an 4 Hour chart of the EURUSD declining in a downtrend.
Notice how the resistance trendline is formed by connecting the highs on our graph marked in green.
On this chart, prices have recently touched the resistance line for the 4th time.
It is important to note that the more times a trendline is tested without breaking, the weaker it becomes.