What Are Trend Lines?

Trend lines are lines drawn on charts that predict the general direction of where the market is heading, and they are lines that help you make pips!

Instead of trying to describe a trend line I will show you a picture. Here you go:

Ok, so now you can see that trend lines will show you the current trend a pair is in, and it will also depict points of support and resistance. Trend lines also help to determine good entry and exit points, and help you decide where to put your stops. Wow! They should be called magic lines, right? Well, not really. They are quite good but not perfect. That is something you will figure out when/if you start using them.

The thing with trend lines is a whole lot of traders use them but very few traders know how to draw them. You won’t have that problem, though. You are about to learn how to do both.

How To Draw Them

Check out the chart above. Up trending trend lines are drawn under the candles whereas down trending trend lines are drawn on top of the candles. Trend lines need at least 2 points lining up to be valid. They can be drawn on any time frame but are more effective on the longer time frames. Also, the longer a trend line holds the stronger it is.

What you don’t see up there in the chart is ranging trend lines. This is an example:

The ranging trend lines are the blue ones. You don’t always have to have lines on either side; I will explain this a little later.

Ok let’s look at how to draw an uptrend. It is very easy, all you have to do is find the two lowest points and connect them.

First step is Identify:

Ok we have found three points to lines up (minimum is two but three is better)

Second step is Draw:

Line up those 3 points and you have your uptrend drawn.

Easy isn’t it?

Down trends work the same except you draw the line at the top.

Ranging trend lines are a little different. You cans see at the top that we have two lines on either side. This is because the price is bouncing off of the same high and low at both the top and bottom. If the bottom line does not have the same low at least twice then no line can be drawn.

First step is Identify:

Ok we have found two points that line up. There are no points that line up at the bottom so

First step is Draw:

Draw a line across those points.

There you have it. Easy, isn’t it?

So let’s review:

- Trend lines are used to identify trends.

- Trend lines can only be made if there are at least two points.

- The longer they hold the stronger they are.

- Trend lines can be used to enter or exit a trade and to place stops or take profits.

Now let’s move onto how to use trend lines.

How To Use Them

Check out the picture below

Above we can see I have selected two points, joined them up and made a trend line. Now that the price is approaching that line again, what will happen? Well the trend line will either continue to hold or break.

Let’s see what happened to that line.

Wow it broke and it dropped 200 pips.

What happened there is that we drew a trend line based on two points and on the third approach the trend line did not hold. That means the uptrend is over and a downtrend or a ranging period is now in effect. You will also notice the first candle is on top of the line, which is not officially a break. It is still only testing the line. You have to allow it a little leeway. Wait until a candle opens outside the trend line. If the line didn’t break and it bounced away it would indicate a strong trend.

I won’t explain trend lines for a down trend because they work the same way. You just want a break out in the opposite direction.

Now I will show you my favorite use for basic trend lines. It’s called range breaking. This is for those occasions when you get a ranging period. Check out the picture.

Ok, so we got our two points on either side and we set out trend lines. What we are looking for here is a break of those trend lines. Did it break? Take a look:

It sure did, the first line broke and everything followed soon after. I hear you saying “wait, these are just like S&R lines right?” Well, yes they are. Except of course you can draw these ones at an angle so they are a little cooler. Plus these are just basic lines. Next we see things that are a little more advanced . This is where trend lines come into their own.