Always Draw Correct Trendlines
Always Draw Correct Trendlines
by Ahmad Hassam
When you learn currency trading as a new trader, it is like building a new car from scratch without an instruction manual. You will acquire quality parts like brakes, wheels, motors, seats, steering wheels etc to build the car.
To become a successful trader you need right parts with right instructions to put them together. After all, a part such as a $2.00 gasket can bring your car to a screeching halt.
Understand that forex trading is very different from trading stocks. Companies can file for bankruptcies like Enron or GM or Goldman Sachs. Companies go completely out of business taking their share value to zero. However in case of currencies, there is no threat of a country going bankrupt. The only thing that can happen is a loan default by a poor country.
What can happen is that severe economic changes take place between countries. This can create dramatic changes between the currencies value of different countries. When that happens, it can create an incredible financial return for savvy, educated currency traders.
Before you enter the markets, you should learn how to find the current trend. For a skilled and educated trader, learning how to spot a trend is very important. A trend can last from a few hours, several days or several months. It can create an enormous financial return for the savvy.
Learn to always trade in the direction of the market. Fighting a trend is like swimming against the current and getting drowned. Traders make many mistakes and the biggest one is trading in the wrong direction.
Suppose you are an active trader. You dont have the trading software that has the moving trend line indicator. An incorrectly drawn trendline can be the difference between making and losing money in a trade. You will need to learn the skill of drawing correct Trendlines.
There are three types of trend lines that you need to learn how to draw. 1) An Inner Trendline. 2) An Outer Trendline. 3) A Long Term Trendline. These three trendlines form on all time frames and in both uptrends and downtrends and you will need them in your trading.
In any uptrend draw a straight line connecting levels of support without penetrating bodies or wicks of a candle. Correctly drawn trendlines can project future levels of potential support in an uptrend and future levels of resistance in a downtrend.
Draw inner uptrendlines by finding the last two support levels and drawing the line from left to right. Likewise, draw the outer uptrendline by starting at the far left of the chart. Move to the right connecting the majority of the support levels with a straight line.
Go on a larger time frame like daily or weekly and draw the longer term trendline by connecting the levels of support starting from the far left of the chart moving forward. The market reacts the same way in a downtrend as an uptrend but in an opposite direction. Instead of a support level, use the resistance level to draw trendlines in a downtrend. That means all the rules are the same but in the opposite direction.
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Discover A Revolutionary New Forex Robot. Develop your own Forex Trading System.
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