A trend line on a forex chart is made to provide valuable information. The most important information that it provides is the direction in which the price is currently moving. These simple lines will help you determine whether the market is moving in an upward direction or a downward direction. They make it easier for a person to identify the points of support and resistance levels for price in the market.
It also helps people find the right positions for making profit and taking the correct protective stops. It will make the entry and exit points clear for the trader. These lines will indicate the points where you can make profits in the market if correctly applied. Trend lines help you make the right decisions and to take profitable positions.
There are different types of trend lines and it would be helpful to understand what each one depicts:
1.Ascending Trend: An ascending trend is any period of time in which the rate of exchange reaches a higher value as compared to the rate earlier. It is an increase in the rate from the rate in the previous period.
2.Descending Trend: A descending trend refers to any period in which the rate of exchange depreciates. When the rate of exchange becomes lower than the exchange rate before it, it is a descending trend.
3.Reversal Trend: A reversal trend means a change in trend. Change is expressed when the rate of exchange changes direction from upward to downward or vice versa after a penetration point. A reversal trend is different from deviation. A deviation means a simple trend change that does not cause a significant change of the trend.
Trend lines could also be classified on the basis of duration such as:
* Short term
When demand for currency is more than the currency supplied, the exchange rate increases. On the other hand, if the amount of currency to sell is less than the amount that traders are willing to buy, the rate at which the currency is offered decreases.
An ascending trend period is a good time to sell currencies. On the contrary, if there is a descending trend, it is the right time to buy. Forex trend lines help to monitor the exchange market and understand the change in trends.
In order to draw a forex trend line and make profits in the market, you need to know the following:
=> A trend line in the downtrend is drawn above the pattern information.
=> A trend line in the uptrend is drawn beneath the pattern information
A forex trend line in the uptrend is drawn by connecting at least two lowest lows. With a downtrend, the line is drawn by connecting at least two highest highs.