TRENDLINES

The signals you have leaned so far will help you make money in day to day trading as pairs move up & down through their normal cycles. But sometimes, huge moves occur, like the Euro going from 1.30 in August '07 to 1.60 in April '08. To catch those moves, you should be familiar with trendlines.

The main thing about trendlines is learning how to draw them correctly:

To draw a support trendline, you connect 2 higher lows.

To draw a resistance trendline, you connect 2 lower highs.

Here are some examples from a recent EUR/USD breakout:

That was a 1300 pip move in less than 3 weeks!

Initially price rejected this trendline:

 

Then 3 months later, price managed to break through:

This is how it looked on the one hour: if you had been following this price action, you could have entered around 1.3450 for a 1300 pip move!

I hope that example is good motivation to study a few candle patterns and to remember to draw trendlines on your charts!

The 7 candlestick patterns shown previously are particularly strong when they occur near a major trendline or point of support or resistance. For more information on trading with trendlines & candles, check Dra's thread on Forex Factory. (link leads directly to the thread).

Trendlines should be drawn on weekly and daily charts to spot the potential 'big runs' and can also be used on 4 hour and hourly charts to pinpoint more precise entries. Scalpers will even put them on 5 minute and 1 minute charts! But unless you are into that sort of 'Vegas' action, just use them on longer timeframe charts so you won't miss the major moves when they occur.

On my 4 hour chart with my gann/qqe indicator, I zoom out to the weekly timeframe and look for places to draw trendlines. Then I check the daily timeframe and use a different color for the trendline. Then I return to the 4 hour and do the same, using a different color from weely & daily. So when I check the 4 hour gann chart each day I can also see if price is getting close to a longer term trendline.

For some excellent (and ongoing) information on trading with trendlines & the candlestick patterns mentioned previously, check out Dra's thread at Forex Factory

Practice drawing trendlines correctly, check them every night on daily & weekly charts .. and watch your trading profits increase.

 

NEXT: CONCLUSION