Trend Lines

What is a Trend Line?

A trend line is drawn on your chart to help predict the general direction of price. They can also help you spot reversals. On the chart below the green line is a trend line.

Trend lines can also help determine good entry and exit points, as well as where to place your stop loss.

Woah! That is a lot of use for a simple line, isn’t it?

Well, not really. They are quite good, but as with any form of analysis, they will not make you any pips if used alone. They do make a great addition to your trading arsenal, though!

The main problem with trend lines is placing them on your chart. At first, it can be a little intimidating, but it is quite easy to get the hang of. This section will teach you how to draw a trend line on your charts and use it to make some pips! 

Placing Trend Lines

There are two main types of trend lines: bullish and bearish.

A bullish trend line has a positive slope and is formed by connecting two or more low points. The second swing low point must be higher than the first swing low. Check out the example:

A bearish trend line is formed by connecting two or more high points. The second swing high must be lower than the first swing high.

So placing lines is pretty easy. All you need to do is:

1. Identify two swing low/high points.
2. Draw a line joining them.

There you have it! You now have a trend line on your chart. But wait a second, newbie. Even though you can place a trend line based on two swing lows and highs, the trend line remains unconfirmed until it is hit a third time.

Once a trend line has been placed and it encounters a third bounce, it becomes active. Now the price should find support or resistance at your trend line. It should struggle to break through the line. If the price does break the line, it usually means the trend is over.

Trend lines can be placed on all time frames, but they are more effective on longer time frames. Also, the longer a trend line is active, the stronger it gets!

Alright, so you can now answer the question, “What is a trend line?” Next up, we will go over using them!