Trend Lines: Are They Valid?

Filed under: Learn Forex Trading |

 

I’ll say from the start, that I believe in HORIZONTAL support/resistance level – but as far as trend line go, I rarely if ever use them. The main reason for this is that trend lines are not as reliable as horizontal support/resistance zones. Perhaps this is because horizontal support/resistance levels are much easier to spot and draw in on your charts. If you take a hundred traders all drawing support/resistance levels on their daily charts, then a lot of these will be around the same level. However, if you took the same one hundred traders and asked them to draw trend lines, then there might be wild variations.  Trend lines are much more difficult to draw, and even a slight variation can produce a completely different angle.

 

Figure 1.

Figure 1.

Figure 1 shows an example of a trend line. It does not matter which pair or time frame this is, as the principle is always the same. You take two or more areas in the market, and join then up through a trend line. If price reacts to this trend line again, then you can say that it’s an important level in the market. If it breaks through it, then you can think about making a breakout trade.

 

In this example, price broke through the trend line and became very bearish after this. However, this could just be coincidence, and could be a case of human beings being obsessed with looking for patterns in just about anything (such as seeing a face in the moon!). Although many traders do use trend lines successful, I feel that it is an art that needs a lot of practice to get right – and it needs to be a very clear level. Personally, I am going to stick with horizontal support and resistance levels – but trend lines are an additional tool to consider in your trading arsenal if they fit with your trading style.

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