Recognizing trends in the forex market is key to any currency trader’s strategy. If the trade is made in the position of the direction of the prevailing trend, a profitable trade is likely. In the forex market, trends can be extremely short-term, presenting themselves in a window of thirty to sixty minutes. Traders must use a variety of tools to identify trends in the market.
One form of technical analysis is drawing trend lines. A trend line is a line connecting significant price points over a defined time period on a price chart. Much like connecting the dots. The meaningful price points are most likely the highs and lows on a bar chart or candlestick chart. For candlesticks, the open or close levels of the candles real body can be used as well.
Drawing Trend Lines
Scanning a price chart for the first time can be overwhelming. Draw a trend line to connect the highest highs and another to connect the lowest lows. Remember only two points are needed to form a line. Observe what has occurred between them. Move from the left of the chart (the past) to the right of the chart (the present). Trend lines can also connect the highs of price moves down and the lows of price moves up.
The most valuable part of the chart is to the right. Spotting trends in the present will serve as potential indicators of where the currency is going in the near future. Charting systems are often equipped with a trend-line function, allowing the trader to insert his own lines.