In this chapter, you will learn –
Trend lines are useful for structuring price action.
They can be used to help identify the current trend or help confirm a reversal of the current trend.
When the price breaks through the trend line, it is likely that the price is now reversing direction.
Furthermore, just as with the support and resistance lines, you can choose whether you use the bodies of the candles or their wicks as the basis of trendlines.
There is no right or wrong, it just depends on what works best for you.
Trendline can be traded in two ways. Either by entering when the price finds support or resistance at the trend line, or when the price breaks through the trend line.
In this case, we are going to observe both ways to trade using trend lines in an uptrend.
First of all, you can trade the bounce of a trend line. This means that whenever the price touches the trend line and finds support, you can place a trade in the direction of the trend. Since this is an uptrend, you go long when the price touches the trend line. Your stoploss will go on the other side of the trend line.
You can use trend lines in the same way when the price is in a downtrend. Whenever price touches the trend line and finds resistance, you can place a trade in the direction of the trend. In this case, Let’s take a short position as the trend is down. Your stop loss would go on the other side of the trend line.
To prevent you from entering on a false breakout, wait until price closes below the trend line and comes back to retest the trend line from the other side.
When the price does not cross the line again and continues moving down, it means it successfully tested the trend line and confirmed that the breakout is not false. You can then enter into a short position.
This concludes the discussion on trading with trend lines . So far you have learned that –