Mastering the forex markets is certainly a difficult task: and there is never any guarantee that you will make money. However, some qualified, regulated forex trading analysts believe that forex trend lines are the key to maximising your chances of success.
The idea behind the forex trend lines trading strategy is to examine ‘trends’: which are supposed to indicate the direction of a financial instrument. They can be used to make judgments about entry and exit points, helping professional traders decide when to buy and sell a currency pair.
What are the different forex trend lines?
There are several forex trend lines which help you make judgments about the market, including:
– Bearish trend lines: This represents a pessimistic view for an instrument suggesting that it may drop in the near future. As such, it represents an opportunity to sell.
– Bullish trend lines: The opposite of a bearish trend line, this describes an optimistic view for an instrument and suggests it is likely to rise: it is seen as an opportunity to buy.
– Hawkish trend lines: This is the term used when there are favourable interest rate rises and these are meant to be an opportunity to buy.
– Dovish trend lines: Basically the opposite of hawkish trend lines, with dovish trend lines there is an opportunity to sell because there has been a favourable decrease in interest rates.
– Flat or ranging trend lines: This means that the instrument is not rising or falling – and it means that there will usually be a change in direction for the trend in the near future.
Forex trend lines: How to make them work
While there is no guarantee of succeeding in the forex markets with a forex trend lines trading strategy, they can be useful in drawing connections between lows and highs in the market. These lines can then be projected for future market movements – and by examining the prices and line extensions traders can make tactical judgments about which currency pairs you should trade with.
Here are examples of how you a professional trader may choose to employ trend lines to make them work for you:
– Forex trend lines strategy: Swings high and swings low
If a trader is able to connect two high swings or two low swings they will be able to see an unbroken line across the points. These show the various peaks and troughs created by price movements.
The idea is that an unbroken trend line could be projected for future movements. So when the price approaches this level again, traders can predict a bounce by establishing entry orders to give you the optimum opportunity to enter the trade. However, do bear in mind that several traders employ the same tactics and, as such, it is possible for orders to be stacked at this level. This could stop the price from reaching the trend line if they have placed the order on to it.
– Forex trend lines strategy: Make connections
Trend lines can also be used to make predictions for the future. The idea is that when a trend line is reached with a bounce it is increasingly important for the market. Of course these trend lines will not continue indefinitely – so traders must anticipate breaks in these trend lines.
For true validation the idea is that you watch and see if a price reacts from a projected line drawn across two points. With a third low or high point you can establish a trend and feel confident that there will be significant opportunities whenever this trend is hit in the future.
– Forex trend lines strategy: Buying and selling
Clearly, the optimum time to buy is when a trend line is bullish and the optimum time to sell is when a trend line is bearish. If your professional adviser can trade in the direction of a trend line then, even if you don’t ultimately enjoy a winning trade, you should at least enjoy an increased level of pips compared to if you had been making trades in a different direction.
The theory behind the forex trend lines strategy is as simple as connecting the dots. As long as traders are able to connect two highs or two lows – and ensure they are not broken by prices appearing between these points – then you could be on the fast track to forex trading success.
PLEASE NOTE: These guides are meant to offer a general outline of some key forex-related areas. They are not to be constituted as financial advice and the strategies should only be considered by professional traders in selected circumstances. If you are considering entering the forex trading markets, seek independent financial advice first.