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What is Trend Line?
The trend is a very common word used in Forex as it forms the basis of trading decisions. You need to identify the trend so as to take your decision in the best possible way to act according to it. A common saying is that the trend is your friend, and indeed, if you are able to properly establish the trend you will be able to follow through with your decisions in a way that they can turn out to be successful.
The trend is the direction an instrument’s price is travelling in over a period of time. These trends are shown on charts by using trend lines. These trend lines will join two or more price points.
Trend lines are important to help you identify the support and resistance levels. They are also useful to establish turning points that may arise, and also the entry and exit points you can choose.
There are different types of trends, including:
- Bull or Uptrend, this comprises a series of higher highs and lows within price action, under which the price is trending higher. When you notice a consistent uptrend you consider it as being bullish, and thus a good buying opportunity.
- Bear or Downtrend, this is when there are as series of lower highs and lows during which the price trends lower. In such a case you consider selling since if there are sustained downtrends it is a good opportunity to earn.
- Ranging or Flat, the market is said to be flat or range bound if it is neither trending higher nor lower. In this case the market moves sideways until there comes a point when the bulls or the bears become more dominant and gain control of the underlying price.
Pros and cons of trend lines
Trend lines are important tools used during technical analysis as they help to determine the current direction of the market prices. Some traders use short timeframes of just a few minutes, while others prefer daily or even weekly charts. Others prefer to base their analysis on tick intervals rather than time intervals. Trend lines are quite simple to use as the trader simply has to chart the price data, utilising the open, close, high and low. The visual representation is very helpful as one can easily identify spikes or breakouts and take action accordingly.
The main limitations of trend lines are that traders often choose different data points. It is important to bear in mind that a trend line could last for a long time, however the price action might deviate enough to require an update. Also, if trend lines are applied on small timeframes they can often suffer from volume sensitivity.
The trend is the direction an instrument’s price is travelling in over a period of time. These trends are shown on charts by using trend lines. These trend lines will join two or more price points.
Trend lines are important to help you identify the support and resistance levels. They are also useful to establish turning points that may arise, and also the entry and exit points you can choose.
There are different types of trends, including:
- Bull or Uptrend, this comprises a series of higher highs and lows within price action, under which the price is trending higher. When you notice a consistent uptrend you consider it as being bullish, and thus a good buying opportunity.
- Bear or Downtrend, this is when there are as series of lower highs and lows during which the price trends lower. In such a case you consider selling since if there are sustained downtrends it is a good opportunity to earn.
- Ranging or Flat, the market is said to be flat or range bound if it is neither trending higher nor lower. In this case the market moves sideways until there comes a point when the bulls or the bears become more dominant and gain control of the underlying price.
Pros and cons of trend lines
Trend lines are important tools used during technical analysis as they help to determine the current direction of the market prices. Some traders use short timeframes of just a few minutes, while others prefer daily or even weekly charts. Others prefer to base their analysis on tick intervals rather than time intervals. Trend lines are quite simple to use as the trader simply has to chart the price data, utilising the open, close, high and low. The visual representation is very helpful as one can easily identify spikes or breakouts and take action accordingly.
The main limitations of trend lines are that traders often choose different data points. It is important to bear in mind that a trend line could last for a long time, however the price action might deviate enough to require an update. Also, if trend lines are applied on small timeframes they can often suffer from volume sensitivity.