How to Draw TrendLines and Channels on xauusd Charts
Support and resistance levels can sometimes take on diagonal patterns, resembling a staircase. This forms a trend, which indicates consistent movement either upward or downward.
A trend line depicts the points of support and resistance for price, based on the direction of market. For an upward moving market trend - trend line will shows the points of support & for a downwards moving market trend - trend line will show the areas of resistance - trendlines are mainly used by many traders to identify these resistance and support levels on charts.
A trend line is a straight, slanted line linking two or more price points. It stretches forward to serve as support or resistance for prices. There are two types: upward and downward trend lines. This tool uses lines to forecast the next price direction. Traders need to know how to draw and read its signals.
The fundamental premise of this type of analysis rests on the principle that market movements occur in discernible trends. Trend lines are employed to illustrate three key elements.
- The general direction of market - upwards or downwards.
- The power of current trend - and
- Where future support and resistance will be likely located
The market typically follows and heads in the direction of a trendline until it is broken, at which point the trendline may take a different direction.
Charting these specific trend lines reveals the general price movement, which can be characterized as either ascending or declining.
Below is example of how to draw these trend lines on charts
Course: Charting an Ascending Trend Line and Trading the Resulting Upward Trend Movement
Course: Charting a Downward Trend Line and Engaging in Downward Trend Movement Trading
MetaTrader 4 offers charting and trading tools designed for drawing trend lines on charts. Traders can use these MT4 tools to apply trend lines on desired points within the trading chart interface.
To put trend-lines on a chart, simply click the MT4 Draw Trend-Line Tools as shown above on the MetaTrader 4 software used for trading analysis, then pick point A to start the line and point B for where the line should end. You can also right-click on the trend line and choose properties, then pick the option to make the line go on forever by checking the "ray tick box": if you don't want the line to extend, uncheck this box on your MetaTrader 4 software. You can also change how the trend line looks, like its color and thickness, in this window where you change the trend line's properties. You are able to download the MT4 software and learn how to analyze trends for trading using it.
The trend is your best friend. Is a popular saying among traders because you never should go against it. This is the most reliable strategy to trade because once the prices start to head in one particular direction they can move in that given direction for sometime - therefore using this market trend strategy presents an opportunity to make trading profits from the market.
Guidelines of How Do I Draw TrendLines
Use candle charts
- The areas used to draw the trend line are along the lows of the price bars in a upwards market. An upwards bullish trend move is defined by higher highs and higher lows.
- The points used to draw the trend line are along the highs of the price bars in a falling downward market. A downwards bearish trend move is defined by lower highs & lower lows.
- The points used to draw trend lines are extremes points - the high or the low price. These extremes are critical because a close beyond the extreme tells investors the trend may be changing. This is an entry or an exit signal.
- The more often a trendline is hit but it's not broken, the more powerful its signal.
There are two main ways of trading this trend line trading analysis setup:
- The Trendline Bounce - Trendline Bounce
- The Trendline Break - Trendline Break
Technical Analysis Techniques of TrendLines
The trend-line bounce is a continuation signal where the price bounces off this trend-line to continue heading in the same direction. In a downward trend, the market will bounce downward after hitting this trend line level which is the resistance level. In an upwards trend, the market will bounce up-wards after hitting this trend line level which is the support level.
A trend line break signals a reversal. The price crosses the line and heads the other way. Break an uptrend, and mood turns bearish. Break a downtrend, and it swings bullish.
For really strong trends, after this signal that the trend-line is broken, the price will stay steady for a bit before moving in the opposite direction. For short trends, this trend-line break signal will mean the price might change direction right away.
These trend line levels serve as support and resistance zones in trading, which is the basis for the trend line bounce and trend line break utilized in analytical charts.
Entry, Exit & Setting stop losses:
This method using a trend line helps find good spots to buy or sell, and stop losses are placed just above or below these lines for protection. When the price bounces off a trend line, traders use it as a low-risk way to start new trades after the price has moved back a bit. Trades are planned at these trend-line spots, and a stop-loss order is set just above or below these lines.
A break in the trend line signals a key change in price direction. Once broken, the price shifts the other way. Traders use this as an early sign to close positions and lock in gains. A clear break through the line means the market may reverse its trend.
Unlike other ways to measure things, there's no math used to find the trend line: this line is simply drawn between two spots on the trading chart.
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