Practical Forex Trading Systems Using Trend Lines: Can You Really Make Profits With Them?
by Chris on February 15, 2010
There are a lot of forex strategies that you can master or assemble for yourself but one of the simplest involves using trend lines to signal when you have to buy or sell.
These lines are really simple to draw and can identify formations in the movements of the foreign exchange markets. This could help you to foretell a downswing or an uptrend so that you can make profits from buying or selling currencies at the right time.
Trend lines will be most visible on a candlestick chart. First identify whether the market is on the rise or plunging or going sideways. You can do this at a glance with a candlestick chart.
If the market is rising, draw a continuous upward line through the highest highs on the chart. Then draw a parallel line connecting 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 draw a parallel line above the highest highs. This will spot a descending channel.
If the market is going sideways you will have a horizontal channel. You can then create a forex trading strategy based on these patterns.
The most usual way that traders use these channels for spot currency trading strategies is to anticipate that prices will remain within them in the short term. So any time the price hits the top line, that would be a signal to sell, on the theory 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 signal to buy.
The upper line is assumed to be a resistance line, above which prices are unlikely to rise while the trend persists. The bottom line is seen as a support line, below which prices are unlikely to fall.
However you do have to bear in mind that the trend may reverse at any point. Because of this, most traders will only enter the market to sell when the price goes above the top (resistance) boundary of an upward trend, and not when it moves above the resistance line of a downward trend because this can be an indicator that the trend is turning.
You could also look at what conditions would signal that a horizontal pattern is likely to precede a breakout. For instance you could backtest a theory that if a horizontal pattern follows a series of downtrends, the horizontal channel in itself represents a support zone and the next major trend is likely to be upward. Still, always test theories like this ahead of basing any system around them. The best control tool is using forex signals. If you sign up for the service of a reliable forex signal provider, you'll be in the position to try out trend turning or breakout systems more effectively.
Certainly there are no guarantees with any system and currency trading is never without risk so be sure to make lots of tests before you begin investing real cash. You can use a forex trading virtual account to run real time tests and be sure that your system shows a sufficient profit over the longer term before you start to back your chosen forex trading strategies in a real account.
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