How to Use Trend Lines to Make Successful Forex Transactions Every Time
Trend lines are a useful visual tool for Forex traders. They provide a pictorial representation of which direction a currency pair is moving in, so that a trader can determine whether it is a good time to buy or sell. It really is that simple.
If the lines on the graph are pointing upwards (towards higher figures), it is either a suitable time to invest in the currency pair or conditions are improving and it may become a good time for buying in the near future.
Conversely, if the trend lines are pointing down, the trader should attempt to make a sale or exchange before too much value (or any) is lost. For this reason, trend lines are very similar to price channels, with the difference being that there is only one guiding line.
Identifying Trend Types
The price channel is a kind of visual ‘container’ for the activities and fluctuations of the currency pair. Two lines are plotted according to the highest and lowest values. The top line signifies resistance (downward pressure). When the price approaches it, traders attempt to sell before the support line is hit and value drops.
The bottom line works in the opposite way. For successful Forex trading, you need to try and buy at the right time, before the resistance line is hit and the value stops rising. What a trend line does is visually connect the lowest and highest values. So, in a downward price channel, it would link the lowest low to the highest low on the graph.
Trend lines have the potential to alert a trader when a pullback (a move against current the direction) is due to end and fall back to the previous trend. Or, they can pinpoint when a trend is starting to reverse or speed up. There are five main types of trend:
Bullish trend lines extend upwards, from the left hand side of the graph towards the top right corner. They represent buy opportunities, because currency activities are moving closer to higher highs. When this happens, there is the potential for a currency pair to rise.
Conversely, bearish trend lines indicate a pessimistic trading situation. There is more chance of lost value here, so it is a good opportunity to sell. Bearish trend lines extend upwards from the bottom right of the graph towards the top left corner.
Hawkish trend lines indicate a positive change to interest rates. This is when rates are increasing and it is a fertile time to make a purchase.
Dovish trend lines, on the other hand, represent a positive drop in interest rates and a good opportunity to sell. The thing to remember about dovish and hawkish lines is that, in either case, traders have been waiting to capitalize on the change, which is why they are referred to as ‘favored’ fluctuations.
When the trend line is completely flat and horizontal, there is no valuable activity within the price channel. The currency pair is neither climbing nor falling. Crucially, ranging lines normally precede a trend reversal. So, they suggest that the previous trend is about to be turned around.
Making Forex Trades with Trend Lines
As they can indicate the future direction of a price channel or currency pair, trend lines are a popular forex trading strategy. Like all strategies, their rate of success depends on a combination of skill and good luck. As explained, the lines are used to link up the lowest and highest values within a channel.
They may then be projected into future (predicted) channels as a way to make informed judgments about how the currency pair will change. By scrutinizing the prices and line extensions, forex traders can make tactical decisions regarding which currency pairs are the best for trading. The following are examples of how a trader might use trend lines:
Swing Highs and Swing Lows
This is when a trader is able to link up two low lying values (or high lying values) in an unbroken line (without price activity moving above or below). Once this happens, they can use the complete trend line to predict future price movements. If the currency approaches this level on another occasion, the trader may forecast a bounce by establishing entry orders and pinpointing the optimum time to jump into the trade.
The downside to this strategy is that, when lots of traders use it, orders may get stacked and the price doesn’t reach the trend line.
Forecasting the Future
As mentioned, trend lines are a great way to make logical predictions about future currency movements. In simple terms, when a trend line is approached with a bounce, the trader knows that it is likely to be valuable for the market. Nevertheless, all trends come to an end at some point, so traders have to be just as vigilant when it comes to predicting their reversal.
For a firm substantiation, you need to observe currency movements and take note if a price reacts from a trend line linking two points. If a third lowest low or highest low (or highest high and lowest high) is added, you can start to see a pattern emerging. In the future, there is a good chance that buying opportunities will develop whenever this trend is reached.
Purchasing and Offloading
Obviously, the perfect time to make a purchase is when a bullish trend line develops. Conversely, the optimal time to offload is when you can spot a bearish trend emerging. The thing to remember is that, if you can trade in conjunction with the movements and directions of established trend lines, you will benefit from a higher level of pips even if you don’t always make the winning trade.
Ultimately, the ideas behind the use of forex trend lines are pretty straightforward. If you can link up at least two highs or two lows, without a break (upwards or downwards) from currency activity from the channel, you have an opportunity to make some lucrative decisions. Don’t forget that the inclusion of a third bounce is what you need to fully validate a trend line.
Have you ever wanted to learn how to trade the bullish piercing candlestick pattern? If so, then you’re in luck. In this addition to my price action course, I’m going to show you how to identify and trade the bullish piercing pattern. This pattern is considered to be a moderately strong reversal signal – not in the same strength category as, for instance, a pinbar (shooting star or hammer) or an engulfing pattern. Since this signal is only moderately strong, price often will retest the low formed by the bullish piercing pattern. Consequently, many traders become discouraged, trading this pattern, before they get a feel for it, or understand how this pattern can really benefit their trading. What is a Bullish Piercing Candlestick Pattern? The bullish piercing candlestick pattern is, obviously, a bullish signal. It is also a moderately strong reversal signal, as I mentioned earlier. Like most of these candlestick patterns, the context in which this pattern occurs is very important. A true bullish piercing pattern only occurs after a downward trend in price. This pattern consists of a relatively large bearish candlestick, followed by a bullish candlestick that closes somewhere above the 50% mark of the preceding candlestick’s real body (see image below). In Forex, the bullish candle should open near the close of the preceding bearish candle; there are rarely gaps in Forex, because of the extreme liquidity of the market. In other markets, the bullish candle should open below the preceding bearish candle (as seen above under Non-Forex Piercing Pattern). Trading the Bullish Piercing Candlestick Pattern In the image below, you will see a bullish piercing candlestick pattern followed by a nice rally in price. This bullish piercing pattern was preceded by a bearish (downward) price movement, which is a requirement to qualify taking this trade; the context is very important whenever you’re doing any kind of price action trading. The doji could be a signal that the bears are running out of steam, but price continued to drop. The next candle was another bearish candlestick, which had a real body that was bigger than the previous 10 or so candlesticks. The idea is that this larger candlestick is more significant, and so are any patterns that develop from it. In order to make a bullish piercing pattern, the next candle must close somewhere above the halfway mark of the preceding bearish candle’s real body, which our example below does (barely). If you would have taken this trade, you could have made some significant gains. Since the bullish piercing candlestick pattern is only a moderately strong reversal signal, it would have been nice to see some western technical analysis supporting this trade. A good trend and reversal trading system can be very useful for trades like this one, and for further qualifying price action trades in general. Example: The Top Dog Trading system measures multiple market energies and combines that with certain triggers for taking trades. These candlestick patterns can take the place of those triggers, or at the very least, the Top Dog Trading system would have likely shown several market energies that supported taking the trade in our example above. I personally do not take any bullish piercing candlestick patterns as entry triggers without some kind of confirmation from my main trading system. As opposed to the stronger signals, e.g., engulfing patterns, morning/evening stars, pinbars, etc., which I sometimes make exceptions for. Maybe you prefer to trade pure price action, or perhaps all of the signals are lining up in your trading system; either way, the piercing pattern above could have been profitable for any trader that spotted it. There are several ways that you could have taken this trade: 1. You could enter the trade when and if the new candle (the candle after the bullish piercing pattern) breaks the high of the previous candle. 2. You could take this trade on the open of the new candle. 3. You could wait for the new candle to possibly pull back in price to 50% of the piercing pattern’s bearish candle (real body) before entering. 4. You could wait and possibly enter when and if price retests the support level revealed by the bullish piercing pattern’s formation. Getting out of the trade: Simply place your stop loss under the lowest low in the sequence of the piercing pattern. In the example above our stop loss would have been placed under the low of the bearish candlestick in the sequence. Trading Japanese candlestick patterns doesn’t always work out as nicely as the one in the example above did. Sometimes you lose on multiple signals in a row, which is why managing your money correctly is so important in any trading that you do. Having the patience to take only qualified trades while risking consistent, responsible amounts of money on each trade will go a long way toward your continued success in trading candlestick signals. Final Thoughts It’s more profitable to trade Japanese candlestick patterns with western technical indicators. If you’re already using a profitable trading system that takes advantage of these indicators, you will be much more likely to benefit from trading Japanese candlesticks as entry signals. Pure price action trading can still be profitable, but I would personally not recommend the bullish piercing pattern for that style of trading. If you really prefer naked price action trading, I would recommend sticking to the stronger reversal signals. As always, the context in which these trades are taken is very important. A true bullish piercing pattern only comes after a bearish trend in price. This movement in price, however, can contain as few as three significant, consecutive, bearish candlesticks in order to qualify as a bearish trend. Never carelessly risk your hard earned money. Be sure to demo trade each new candlestick pattern that you learn until you are confident in your candlestick trading techniques. As with any type of trading, proper money management and patience will go a long way toward your success with these candlestick strategies. Add some quality, practice screen time, and you could be trading the bullish piercing candlestick pattern like a pro in no time.
Here are two bitcoin trading strategies using the 5 day exponential moving average crossing the 20 day exponential moving average by using the BTCUSD pair the other is using the Grayscale Bitcoin Trust ticker symbol $GBTC traded on the over the counter market (OTC). These are both examples of short term trend trading signals for capturing moves to the upside and going to cash if price starts moving down. Below is a backtest based on buying the ^BTCUSD when the 5 day EMA crosses and closes over the 20 day EMA and then selling when the 5 day EMA closes back under the 20 day EMA: (Price data used from the Kraken platform). Below is a backtest based on buying the Grayscale Bitcoin Trust $GBTC (OTC) when the 5 day EMA crosses and closes over the 20 day EMA and then selling when the 5 day EMA closes back under the 20 day EMA: These backtested signals show how Bitcoin can be a great asset for trend trading and used to diversify your trading system. This post is for informational purposes and is not investment advice.
When I asked “What kind of psychological edge do you have in your trading?” in my Facebook trading group I had a lot of great answers. Here are a compilation of many of their great answers. Here are the 20 mental trading edges that a trader can use in their battle for profitability in the markets. 1.#1 goal is capital protection 2.Focus on following a process 3.Rarely committing trading errors 4.Discipline 5.Focus 6.Trading with the predominant trend instead of your opinion 7.Using entry and exit signals instead of emotions 8.The goal is trading with discipline not trying to make money in every trade 9.No regrets on a trade that followed your plan 10.Patience 11.Look at charts of the next highest timeframe 12.Trade for capital appreciation not to pay monthly bills 13.Trading your own capital 14.Having realistic trading return expectations 15.Previous trade, irrespective of profit or loss has no influence on next trade – (Srinath Madas) 16.Trading with a position size that keeps your emotions out of your process 17.Living a healthy lifestyle 18.Living a balanced life 19.You know that you are the weakest link in the trading process 20.“Tons and tons of evidence that the models work over time as long as risk management criteria is adhered to.” – Richard Weissman