TREND LINES

After finding the geometry of support and resistance, we come to the most classical tool
used by chartists—trend lines. Trend lines provide a projection of support and resistance
that links past behavior into the future. A trend line is used to map whether there is consistency in highs and lows. While simple in its construction, knowing the trend is a
basic foundation for trading forex. Once a trend is identified, detecting a potential change
in the trend becomes a focus for the trader because trading at the break of a trend or the
failure to break a trend line is a high probable point of success. Figure 10.3 shows a
downtrend in place and the price twice coming to the trend line, and then failing to stay
above. Although the price actually created a high above it (where the arrow points), it
failed to follow with another candle at that high point. Thereafter, the return of the price
under the trend line and the resumption of the downtrend would be recognized by an
experienced trader as a sell condition.
The main benefit of trading with a trend is one of probabilities. An upward trend
presents a greater number of buying opportunities to the trader. It doesn’t mean there
are no good selling or contratrend opportunities. We can see in the charts that there
were countertrend moves, but much fewer than trend-aligned moves. A prudent trader
will seek opportunities that provide a higher probability of success. Trading with a trend meets this condition. The question arises: Which trend should the trader align himself
with—the week trend, day trend, 4-hour trend, and so on?
Each choice has advantages and disadvantages. The basic trade-off is the increase
in price volatility and range when a larger trend time frame is selected. Trading in the
direction of the weekly trend means that a trader will see periods of time and maybe
days when the price is moving the other way, threatening losses. But in this case, if
the day trends are also moving in the same direction as the weekly trends, it represents
more confidence that the trend is stable. For intraday traders trading off a 15-minute
chart, when the 15-minute trend direction is aligned with the 4-hour trend direction and
also confirmed by the 5-minute trend direction, there is a high level of robustness to
the trend. The concept of three time zones confirming trading decisions will apply in
many areas.




By ABE COFNAS