Friday December 30, 2016 - 23:01:00 GMT
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Tips to trade the trend line in the forex market.
The study of the price movement of any pair regardless of any economic event is known as the technical analysis. In the forex industry, there is a saying that “history tends to repeat itself”. Traders use the past price movement to determine the potential support and resistance level of any pair to take their trade. They use different parameter and chart to identify the potential key reversal and entry point in the currency pair by using the technical analysis.
One of the most advanced way of trading the financial instrument by using the trend line support and resistance level. There is a well-known proverb “Trend is your friend” in the forex industry. Professional traders draw trend line in order to take potential trade in the forex market. A valid trend line will always have at least three connecting points in any currency pairs. Trading the trend line with price action signal confirmation and confluence gives better result in the long run.
Let's see an example how the professional traders trade the trend line support.
Figure: Trading the trend line support
In the above figure, a valid trend line is drawn by connecting three major swinging points of the NZDUSD chart. A, B and C are the three major connecting points of the trend line. The trader will look for buying opportunity at the point D in the trend line. Here the trend line acts as sloping support level for the currency pairs.
Price Action Analysis
The study of raw price data and candlestick formation is known as the price action analysis. Candlestick confirmation in the key support and resistance level gives much more accurate trading signals. This is one of the most reliable and advanced technical analysis that the professional traders use before taking a trade. To be precise Price action traders are combining the fundamentals of technical analysis with the candlestick pattern to secure high probability trade in the forex market.
So how do master the art of trend line trading?
In order to master the art of trend line trading, you must know how to draw the trend line in any currency pair. Professional traders use the higher highs or lower lows of the market to draw the trend line .Always make sure that you have at least three connecting points for drawing the trend line. Never for the trend has a line to join the higher highs or lower lowered. If you forcefully join them it will be a faulty trend line and you will lose huge amount money due to the faulty trend line. From the above figure, you can see that how the professional draw the perfect trend line in the currency pair.
The trend in favor of the long-term prevailing trend: This is one of the most well-known proverbs in the forex industry. You should always draw trend line in favor of the long-term prevailing trend in order to avoid silly mistakes. Most of the professional traders use the daily and weekly time frame to draw the trend line in the currency pair. Once you draw the trend line make you trade the trend line support and resistance level with price action confirmation signal.
Price action setup: The most reliable candlestick pattern are often formed at the key support and resistance level in the market. Trend line trading should be done with price action confirmation signal. Professional price action trader always uses the highly reliable price action candlestick pattern to trade the key support and resistance level in the market. It true that trading the trend line with candlestick formation will seem little bit difficult but once you practice them in the higher time frame it will eventually become easier.
Money management: No matter which trading strategy you follow it extremely important to use proper risk management factors. Those who are trading the financial instrument for a long period of time have been consistently profitable due to their proper risk management factors. If you don’t know your potential risk then you will never succeed in the forex market. Risk management factors vary from traders to traders. It’s not mandatory to follow 2% rule since it actually doesn’t work in real life trading. Rather you should focus your risk in terms of dollar and you must be comfortable with the risked amount in every single trade. Always make sure that your winner is bigger than your loser. So, in this way, you will still earn money even after having more losing trades in the market.
Summary: There are a number of different methods for trading the financial instrument in the world. One of the most popular methods is trend line trading method. If you to become a professional forex trader then you need to trade the market in favor of the long-term prevailing trend. Experts use the trend line to execute their orders in the market.AS a professional trend trader always make sure that you are not blindly trading the trend line. The trend line is often broken in the forex market. So if the trade goes against you that you cut your loss early. And always use price action confirmation signal to execute any orders in the market. Trading with price action confirmation signal will greatly increase your winning streak in the forex market. Never try to recover your loss after consecutive bad trades. Always remember that losing is just part of trading. Even the most professional traders lose very often in the forex market.
Article was written by Dwayne Buzzell
An economist, Forex trader and Forex writer. I have a keen eye for spotting international trading trends. My Forex experience as an individual trader has been thoroughly enjoyable and has brought significant returns for myself and my clients. More on my website: Forex Trader
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