Trendlines: One Key Factor that Can Make a Difference to your Forex Trading Success

forex trade

Forex trading is an interesting way to gain exposure to fast-moving international markets and generate profits not always achievable with other trading platforms. But to be successful you have to be more than lucky. You need some skill – and strategy – in order to maximise your forex success. Here we talk about trendlines and what they mean for Forex traders.

What are Trendlines?

Trendlines are designed to help analyse upward and downward trends – uptrends and downtrends. An uptrend will be recorded using a trendline that goes straight up through a set of ascending higher troughs. For a downtrend, the trendline goes straight downwards marking a set of descending lower highs. Trendlines are also referred to as trend support lines as they demonstrate the direction a trend is heading in, and provide a support line.

Trendline Rules and Patterns

When you are using Forex you should have a good grasp of the meaning of trendlines in order to effectively analyse the market. The trendline rules, commonly applied, are that falls in price that go towards an uptrend or rises in price that go for the downtrend are good places to set up a position in the same direction that the trendline is heading. It is generally a sell signal when there is a penetration of the uptrend and a buy signal when there is penetration of a downtrend.

So as the price of a currency gets closer to an uptrend, it is generally a signal to buy. However, the trendline shouldn’t be cut through. Following the same pattern in reverse, it is a good idea to sell as a price gets closer to a downtrend line. But, again, it cannot be cut through.

Using Trendlines in Forex

A good trading platform, like CMC Markets, offers easy access to trendline-creation tools where you can simply create your own and benefit from the extra insight this provides into the market. Using tools for charting you can also keep redrawing trendlines if you need to – this is important if a trendline is breached for a short time and then resumes along the same trend.

Creating and Benefiting from Solid Strategy

Trendlines are only one form of analysis that helps you get the most from Forex trading. In order to be successful, it is important to calculate your strategy and understand your aims and goals in terms of trading style and budget. A good trading platform allows you to plan your trades, as well as to easily and quickly react to the market when you need to. As Forex is a fast-moving market you benefit from the ability to take positions as and when the market changes, without having to wait for the market to open.

 

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

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