Basic Forex Education_12. Trendlines

Lesson 12: Trendlines

Support and resistance lines can be not only horizontal but also diagonal.
Diagonal support and resistance lines are called trendlines and they are drawn by
connecting two or more price peaks or bottoms.

Trend-following is one of the most basic and profitable trading strategies.

If a currency pair is in an up-trend, traders wait for the price to approach its
trendline - and if it acts as a support, they buy once the price bounces beyond that
level.

Conversely, if the price is trending down, traders wait for it to approach its
trend line as the resistance - and sell after it bounces. Remember; the more times
support and resistance levels have been tested, the stronger they get.

The same goes for the trendlines. The biggest problem with trendlines is that
unlike horizontal support or resistance they can be very subjective. Tell 5 different
people to draw a trendline, and you will get 5 different trendlines.

A trend channel is another great tool for a trend trader. In order to make a
channel, all you have to do is draw a line parallel to your trend line. Channels are
great for setting your price target.

You just went long after the price bounced from a rising trendline but you
didn’t know where to take profit. By drawing a channel, you can project how high the
price is going to rise, and based on it, you can calculate your target profit.