Trading The Trend Lines And Price Channels For Big Profits
Only one of two things can happen when a price approaches
support or resistance: the price can break through it, or it
can bounce off and reverse direction. The same is of course
true for trend lines.
1. Trading on a Pullback
If a chart is trending in a clear direction, and a trend line
can be drawn connecting a series of relative highs or relative
lows, trading opportunities exist when the price approaches the
trend line. If the price bounces off the trend line and resumes
the trend in the original direction, this can be an excellent
opportunity to enter the market in the direction of the
dominant trend. This is often referred to as buying on a
pullback in an up trend or selling into strength in a
downtrend.
Buying on a bounce off such a support line can be done through
a limit order just above the support.
This ensures that the short term force is in the direction of
the break lower. The opposite would be true for a break above a
resistance line.
Price Channels
A trending market can move between parallel support and
resistance levels. A price channel between two parallel lines
can often be drawn in a trending market. The key to a price
channel is that the lines be parallel to each other. The value
of the price channel in predicting the ongoing speed of a trend
depends on the lines being parallel.
Unlike trend lines, which can be drawn on any chart with two
relative lows or highs, price channels should not be forced on
a chart where they are not quickly apparent. Once a trend line
is established, create a duplicate parallel line on the chart.
Then move it up to the relative highs above or down to the
relative lows below the trend line. If two or more fit with the
line, there may be a valid price channel. Otherwise, the market
may simply be too volatile - even in the midst of a strong
trend - to plot a channel.
In the above example the (support) trend line itself is valid,
but creating a parallel line on the opposite side of the prices
does not add any value to the chart and is not warranted by the
data. Placing a support or resistance line where it does not
belong will simply provide you with false signals to buy or
sell.
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provides forex analysis reports, live pivot points on majors
and crosses, etc are provided with collection of carefully
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support or resistance: the price can break through it, or it
can bounce off and reverse direction. The same is of course
true for trend lines.
1. Trading on a Pullback
If a chart is trending in a clear direction, and a trend line
can be drawn connecting a series of relative highs or relative
lows, trading opportunities exist when the price approaches the
trend line. If the price bounces off the trend line and resumes
the trend in the original direction, this can be an excellent
opportunity to enter the market in the direction of the
dominant trend. This is often referred to as buying on a
pullback in an up trend or selling into strength in a
downtrend.
Buying on a bounce off such a support line can be done through
a limit order just above the support.
2. Trading a Break of the Trend
The second possible trade is the break of the trend line, which
can be traded just as any other broken support or resistance
line. If a candle closes through a trend line to the downside,
as in the example below, the proper entry point would be to
sell once the price moves below the low of the breakthrough
candle.
This ensures that the short term force is in the direction of
the break lower. The opposite would be true for a break above a
resistance line.
Price Channels
A trending market can move between parallel support and
resistance levels. A price channel between two parallel lines
can often be drawn in a trending market. The key to a price
channel is that the lines be parallel to each other. The value
of the price channel in predicting the ongoing speed of a trend
depends on the lines being parallel.
Unlike trend lines, which can be drawn on any chart with two
relative lows or highs, price channels should not be forced on
a chart where they are not quickly apparent. Once a trend line
is established, create a duplicate parallel line on the chart.
Then move it up to the relative highs above or down to the
relative lows below the trend line. If two or more fit with the
line, there may be a valid price channel. Otherwise, the market
may simply be too volatile - even in the midst of a strong
trend - to plot a channel.
In the above example the (support) trend line itself is valid,
but creating a parallel line on the opposite side of the prices
does not add any value to the chart and is not warranted by the
data. Placing a support or resistance line where it does not
belong will simply provide you with false signals to buy or
sell.
About The Author: Action Forex
provides forex analysis reports, live pivot points on majors
and crosses, etc are provided with collection of carefully
selected educational articles and free trading ebooks
downloads.
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