Plotting a trend line on a Forex chart gives very valuable information. Not only will the trend line show a current trend (direction) of the price move, it will also depict points of support and resistance levels for the market price.
In addition, it will also help to determine good entry and exit points, best positioning for profit taking and placing protective stops. This very simple, but yet quite powerful tool, will be one of the crucial indicators of a possible trend reversal (when the market price starts to move in the opposite direction).
So, shall we learn how to draw trend line to make it our good friend in profitable forex trading?
In the uptrend market, the trend line is drawn below the pattern formation; in the downtrend it is drawn above it. (That is why when the trend is going to change, our trend line will be crossed, which will therefore give us a signal that the price may start moving in another direction.)
In the uptrend, the Forex trend line is drawn through the lowest swing-points of the price move. Connecting at least two “lowest lows” will create a trend line.
In the downtrend, a trend line is drawn through the highest swing-points of the price move. Connecting at least two “highest highs” will create a trend line.
A trend line confirms its validity when the price respects this line. The more “lowest lows” / “highest highs” the trend line contains, the stronger it becomes.
Another sample of drawing trend lines: main and inner downtrend lines.