Drawing Correct Trendlines
Understand the forex market.For new forex traders, learning forex trading is like building a new car from scratch without an instruction manual. Many of you acquire quality parts like brakes, wheels, motors, seats, steering wheels etc. Learn swing trading.
To become a successful trader you need right parts with right instructions to part them together. After all, a part such as a $2.00 gasket can bring your car to a screeching halt.
Understand that forex trading is very different from trading stocks. Companies can file for bankruptcies like Enron or GM or Goldman Sachs. Companies go completely out of business taking their share value to zero. However in case of currencies, there is no threat of a country going bankrupt. The only thing that can happen is a loan default by a poor country.Learn forex trading.
What can happen is that severe economic changes take place between countries. This can create dramatic changes between the currencies value of different countries. When that happens, it can create an incredible financial return for savvy, educated currency traders.
Learning how to spot a trend that can last from a few hours, several days or several months can create an enormous financial return for the skilled and educated trader. You need to learn how to find the current trend before you enter the markets.
Learn to always trade in the direction of the market. Fighting a trend is like swimming against the current and getting drowned. Traders make many mistakes and the biggest one is trading in the wrong direction.
If you are an active trader and you don’t have the trading software that has the moving trend line indicator, you will need to learn the skill of drawing correct Trendlines. An incorrectly drawn trendline can mean the difference between making and losing money in a trade.
There are three types of trend lines that you need to learn how to draw. 1) An Inner Trendline. 2) An Outer Trendline. 3) A Long Term Trendline. These three trendlines form on all time frames and in both uptrends and downtrends and you will need them in your trading.
Draw a straight line connecting support levels without penetrating bodies or wicks of a candle in any uptrend. Correctly drawn trendlines can predict future levels of potential support in an uptrend as well as future levels of resistance in a downtrend.
Draw inner uptrendlines by finding the last two support levels and drawing the line from left to right. Likewise, draw the outer uptrendline by starting at the far left of the chart. Move to the right connecting the majority of the support levels with a straight line.
Go on a larger time frame like daily or weekly and draw the outer term trendline by connecting the levels of support starting from the far left of the chart moving forward. The market reacts the same way in a downtrend as an uptrend but in an opposite direction. Instead of a support level, use the resistance level to draw trendlines in a downtrend. That means all the rules are the same but in the opposite direction.
