Trend Line Trading Strategy
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What are trend line?
Trend line trading strategy is a most powerful and profitable trading strategy used by professional traders. A trend line is a line we draw on our chart that connects the swing high and swing low (uptrend & down trend is opposite) during a trending market. Below the chart it’s forming Higher High and Lower high confirming a up trend. We connecting both lower high and higher high then create a trend channel.
Why We Draw Trend Line ?
We draw trend line because of two reason
Reason 1# Support & Resistance
Trend line act as a support and resistance but also, a break of trend line can signal a possible to trend change. Remember don’t enter trade blindly just because price has touched a trend line, and wait for a price action method.
Reason 2# Possible to Trend Change
If trend line break it is possible trend change, but don’t enter a trade once you get a trend line break. We need other confirmation to take a entry.
How To Draw Trend Line?
a) Minimum two touch needed or more is better
b) Trend dos’t run always smoothly so always find more obvious point
c) Trend line treat as a area of the price or price channel
Trend Line trading Strategy
1. Trend trading Strategy
Area of High Confluence: An area where a lots of traders have their eye on meaning that there is higher probability that trader will be taking action at these area (opening and closing position) which is trader opportunities arise.
Identify the trend if they forming lower low and lower high downtrend is confirm.
Identify the trend line connection previous swing point
Find out the supporting point and draw a line which turn into resistance
Then identify the area of high confluence where cross support and resistance with trend line
Watch the price momentum & behavior or price action when approaching that area
Use candlestick pattern in that area
Many Types of Traders Are Stacked Here:Difference trading style, types and schools of trader are all watching this area meaning the more people who are looking to take action the better.
Support and resistance trader watching this area for short trade opportunities
Trend line trader watching this area for short trade opportunities
Price action and candlestick traders watching this area for short trade opportunities
Confluence trader (like us) watching this area knowing all these
Trading Strategy
According to large time frame the price is running in a downtrend but short term trend is up. If price break the the upper trend line it means trend change. For the sell wait to break the supporting trend line, which is high probability trade.
2. Reversal Trading Strategy
In the reversal trading we are looking for key price action pattern that have formed right before trend line break. There are many kind of price action pattern you cal look for such as wedges, triangle etc, we already discussed in our chart pattern chapter. Now here we focusing on two pattern only
a) Double top and double bottom pattern (right before a trend line breakout)
b) Trend changing pattern (right before a trend line breakout)
a) Double top and double bottom pattern
Identify trend line by connecting recent swing point, it is up or down
Is price creating new higher high and higher low?
Looking for momentum loss wave or candlestick before break the trend line
Why is important to identify reversal price action pattern right before the trend line break because you are going against dominant uptrend. Now above the picture we have seen double top pattern right before the trend change. It’s means the lost of momentum fail to create new high. And it’s confirming that trend has changed and ready run downside.
b) Trend changing pattern
In the uptrend creating higher high and higher low after that looking lower high before trend line break
And downtrend lower low and lower high and looking for higher low before trend break
The reason we look for price action pattern right before a trend line break is because we are going counter trend and need to see momentum loss.
Read More…….
How to Choose Stocks For Long Term Investment, click here
Fibonacci The Basic Understanding, click here
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