Are you trendy enough? Is following trends a part of your lifestyle? Well, who isn’t a fan of trends? Even the Forex market follows trend lines. Shocked? Wait till you finish reading this article because more shocking things are yet to come!
The Forex market has a high fluctuation rate and you never know what is going to happen from moment to moment. There could be so many possibilities. The closing rate can either increase or decrease or stay the same for days! That’s why it’s always a tough call to make a decision beforehand. If you make a wrong decision, you could lose your whole trading account alongside financial loss.
That’s why, top traders always advise to follow the trendlines because let’s admit, no trading strategy can assure a hundred percent winning ratio and no loss. That’s why traders are always thinking of making new strategies that can help with their trades.
Trendlines are most commonly used for technical analysis which can help a trader predetermine the market price in Forex. However, trendlines are often considered under hyped and are most often are not drawn accurately.
While drawing a trendline, we need to remember two things.
1. Ascending Trend line
The ascending trend line is the horizontal line where the line of support gets hit. It shows that the value of a commodity will increase at the point on the ascending trendline where the support line gets hit. An ascending trendline is also known as an uptrend line.
2. Descending Trend line
The horizontal line where the line of resistance gets hit is known as the descending trendline. The value of a commodity gradually starts to fall at the point on the descending trendline where the resistance gets hit. It is also known as a downtrend line.
How to draw a trendline properly
An accurate trendline can often be the key to turn a loser into a champion and it requires nothing but a bit of patience and a thorough case study of the exchange rate of the currency pair being used. You might be confused by it but you can learn this by using a demo account. Look at this site and open a demo account with Saxo and develop your skills like pro traders in Hong Kong.
1. Connect the lower highs to find the bearish trend line. For the bullish trend line, use the lower highs.
2. Then, as long as new highs are recorded, the points are to be connected until they reach the highest high.
3. Repeating the same process from resistance but in the opposite direction, the points are connected until they reach the lowest point or the support.
4. While drawing trend lines, one should keep in mind that trendlines cannot be drawn by forcing them to fit in the market. Because if the trendlines don’t fit in the market, then they are just invalid.
Determining the trend
Before a trendline is drawn, all previous price chart on a particular currency pair is required. The drawing of a trendline is similar to a line chart. Therefore, a trendline is user-friendly and easy to understand providing the traders with a deep vision of the Forex market.
Whenever a trend is up, it is easier to determine whether the trend will go higher up or go lower by analyzing the previous records in the trendline. Similarly, we can forecast the state of a trend when it’s on the low.
Trendlines give traders the outlook to reach for opportunities whenever a trend is going up or down. Trendlines also signals the end of a trend and aware the traders about their future purchases or trade.
Why are trendlines useful?
If we are to consider the usefulness of trendlines, several reasons will pop up because trendlines have always helped traders to know more about their trades.
Since trendlines are easy to understand, it saves the time, money, and energy that would be need if you were going through all the previous documents just to learn about the current trends.
Since the Forex market fluctuates easily and within a short time, a trendline break can act as a possible trend change warning to traders.
It helps traders to come up with new strategies instead of sitting idly. To make a profit, traders can always try innovative ideas for their career to bloom by following the trendlines.