What are the trend lines?
Trend Line Trading trading strategy is the most powerful and profitable trading strategy used by professional traders. A trend line is a line we draw on our chart that connects the swing high and swing low (uptrend & downtrend is opposite) during a trending market. Below the chart, it’s forming Higher High and Lower high confirming an uptrend. We connecting both lower high and higher high then create a trend channel.
Why We Draw Trend Line?
We draw the trend line because of two reasons
Reason 1# Support & Resistance
The trend line act as a support and resistance but also, a break of trend line can signal a possible trend change. Remember don’t enter trade blindly just because the price has touched a trend line, and wait for a price action method.
Reason 2# Possible to Trend Change
If trend line breaks it is possible to trend change, but don’t enter a trade once you get a trend line break. We need other confirmation to take an entry.
How To Draw Trend Line?
a) Minimum two touches needed or more is better
b) Trend don’t run always smoothly so always find more obvious point
c) Trend line treat as an area of the price or price channel
How To Trade Using Trend Line?
1. Trend Trading Strategy
Area of High Confluence: An area where a lot of traders have their eye on a meaning that there is a higher probability that trader will be taking action at these areas (opening and closing position) which is trader opportunities arise.
- Identify the trend if they forming lower low and a lower high downtrend is confirmed.
- Identify the trend line connection previous swing point
- Find out the supporting point and draw a line which turns into resistance
- Then identify the area of high confluence where cross support and resistance with trend line
- Watch the price momentum & behavior or price action when approaching that area
- Use candlestick pattern in that area
Many Types of Traders Are Stacked Here: Difference trading style, types, and schools of trader are all watching this area meaning the more people who are looking to take action the better.
- Support and resistance trader watching this area for short trade opportunities
- Trend line trader watching this area for short trade opportunities
- Price action and candlestick traders watching this area for short trade opportunities
- Confluence trader (like us) watching this area knowing all these
Trend Line Trading Strategy
According to the large time frame, the price is running in a downtrend but the short term trend is up. If price breaks the upper trend line it means trend change. For the sell wait to break the supporting trend line, which is high probability trade.
2. Reversal Trading Strategy
In the reversal trend line trading, we are looking for a key price action pattern that has formed right before the trend line break. There are many kinds of price action patterns you cal look for such as wedges, triangle, etc, we already discussed in our chart pattern chapter. Now here we focus on two pattern only
a) Double top and double bottom pattern (right before a trend line breakout)
b) Trend changing pattern (right before a trend line breakout)
a) Double top and double bottom pattern
- Identify the trend line by connecting the recent swing point, it is up or down
- Is price creating a new higher high and higher low?
- Looking for momentum loss wave or candlestick before break the trend line
Why is important to identify reversal price action pattern right before the trend line break because you are going against a dominant uptrend. Now above the picture, we have seen the double top pattern right before the trend change. It means the loss of momentum fails to create a new high. And it’s confirming that the trend has changed and ready run downside.
b) Trend changing pattern
- In the uptrend creating higher high and higher low after that looking lower high before trend line break
- And downtrend lower low and lower high and looking for higher low before trend break
The reason we look for price action pattern right before a trend line break is because we are going counter-trend and need to see momentum loss.