Once you are familiar with forex chart types you can finally start analyzing them. One of the popular ways of technical analysis is trend lines. Drawing trend lines on a forex chart will provide you with very accurate information. Of course you will have to spend some more time learning how to draw trend lines correctly, otherwise your trading experience might go bad!
What do trend lines show anyway? A well-drawn trend line helps traders find good entry or exit points, stop places and profit making positions. To make things even more exciting for you, not only that these lines can actually show you when the market price is about to move the other direction, it also shows the levels of support and resistance for trading price! As you can see trend lines method is a great indication tool that is very useful in forex trading.
OK, so how do you draw these things?
- Figure out if the graph is going upwards or downwards
- Find support areas in case of uptrend or find resistance areas in case of downtrend
- draw forex trend line along the lowest points in uptrend
or draw forex trend line along the highest points in downtrend
How do you determine when the price is about to go the opposite direction? If you see that your trend lines cross each other, you are actually looking right at an indication that the price can shift to another direction.
How to make sure that you didn't make a mistake? Draw a trend line through two points and confirm the trend by one more point.