TrendlinesHow To Trade Using A Trendline?
Trendlines are simple but powerful technical analysis tools.
A bullishtrendlineis a line that is drawninclinedat an angle,connecting 2 or more rising (higher) minimums (lows), indicating a dynamic support. A bearish trendline on the other handis a line that is drawn inclined at an angle connecting 2 or more declining (lower) maximums (highs), indicating a dynamic resistance.
Atrendline can be established by joining at least 2 minimums (lows)or 2maximums (highs). A trendline plot along 3 or 4 minimum/maximum tend to be more significant.
It often happens that a trendline that appears to be correct may be later redrawn according to the new minimum price thresholds. A trendline that has its levels violated may require redrawing the previous trend line or drawing a completely new one, while leaving the old one based on a particular strategy.
How to use them?
When we are in a bullish trendline, which we established by combining the first two rising minimums i.e. lower lows, it's time to buyLong when the price makes a correction by intercepting the trendline. This can be viewed at point 5 in the following image.
By contrast, in the presence of a bearish trendline, which we established by joining the first two declining maximum i.e. lower highs, it is time to sell Short when the price makes a correction upward by intercepting the trendline. This can be viewed exactly at point 5 of the following image.
As with the supports/resistances, Breakout technique can also be used for dynamic trendlines.This indicates a good trade entry or investment opportunity aimed at reversal of the trend triggered by the breaking of the same trendline.
Even in this case, it is good to be mindful of false breakouts that could be misleading, of which the existing trend is still at play.
the Analyst's answerJean Grossett - Financial analyst
Trendlines are useful tools to include in your trade strategy repertoire. However when applying a trend line strategy, it is important that you study and follow the rules and instructions. An example of a trendline strategy is the Fold Rule, and Wolfe waves.
After establishing a trend line, based on the above images for bullish and bearish trends. In an uptrend, if prices lower than point ‘1’ is established, such trendline has been nullified. Hence the trader/chartist has to wait for new levels to be established. It is also good to leave at least 2 old trend lines on the chart, as these often time serves as levels for resistance or supports in the future.
Trendlines like other line object tool on the MetaTrader platform should not be used in isolation, but in combination with other highly profitable price action signals.