What Are Trend Lines?
Trend lines can be used effectively by traders to gauge potential areas of support/resistance, which can help to determine the likelihood that the trend will continue. This strategic advantage is available to any trader willing to take the time to learn how to draw a basic trend line and incorporate it into his or her trading strategy.
Drawing Trend Lines on your Trading Charts
Not all trend lines are created equal. Like much of technical analysis, drawing trend lines is more art than science.
Here are five simple steps to help you draw proper trend lines.
- Don’t make the mistake of drawing trend likes from left to right. Always start with the current price.
- It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.
- The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.
- Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.
- And most importantly, DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn’t a valid one!
Trend Lines for Better Trend Trading
So now that you know how to draw your trend lines, how can you incorporate this into your trading? Yes, it is essential to always know the trend of the market, but the problem is that most traders still rely on outdated technical indicators (like trend lines) that are generated by looking at prices alone and this is essentially informing you only where the market has been. Because these types of indicators lag behind the market, they cause traders to enter into positions far too late – missing out on potential profits. The trend line only helps you to identify the prevailing trend, it does not tell you when it’s about to change.
Along with drawing proper trend lines, you also need a tool to help you forecast future market direction like VantagePoint.
The proprietary research technologies are the underlying engine that drives VantagePoint’s unique ability to transform trend following, lagging indicators, into trend forecasting, leading indicators.
