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Simple Forex Strategies Using Trend Lines
from:There are many forex strategies that you can master or devise for yourself but one of the simplest involves using trend lines to indicate when you should buy or sell.
These lines are very simple to draw and can identify patterns in the movements of the forex markets. This could help you to predict a downswing or an upswing so that you can make money from buying or selling currencies at the right time.
Trend lines will be seen most clearly on a candlestick chart. First identify whether the market is rising or falling or broadly stable. You can do this at a glance with a candlestick chart.
If the market is rising, draw a straight upward line through the highest highs on the chart. Then draw a parallel line below the lowest lows. The area between is the channel through which the prices are currently rising.
If the market is falling, do the opposite by marking the line that passes through the lowest lows, then make a parallel line above the highest highs. This will identify a descending channel.
If the market is stable you will have a horizontal channel. You can then develop forex strategies based on these patterns.
The most common way that traders use these channels for spot forex day trading strategies is to assume that prices will remain within them in the short term. So any time the price hits the top line, that would be a trigger to sell, on the assumption that the price is likely to move back down within the channel. On the other hand, if it hits the bottom line, that would be a trigger to buy.
The upper line is considered a resistance line, above which prices are unlikely to rise while the trend continues. The bottom line is considered a support line, below which prices are unlikely to fall.
However you do have to keep in mind that the trend will reverse at some point. Because of this, many traders will only enter the market to sell when the price moves above the top (resistance) line of an upward trend, and not when it moves above the resistance line of a downward trend because this may be an indicator that the trend is reversing.
You could also look at what conditions would indicate that a horizontal pattern is likely to precede a breakout. For example you could backtest a theory that if a horizontal channel follows a series of downtrends, the horizontal channle in itself represents a support area and the next major trend is likely to be upward. However, always test theories like this before basing any system around them.
Of course there are no guarantees with any system and currency trading is always risky so be sure to make plenty of tests before you begin investing real money. You can use a forex demo account to run real time tests and be sure that your system shows a good profit over the longer term before you start to back your chosen forex strategies in a real account.
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