What are trend lines in Forex Trading
In forex trading, the trend lines are really important to understand. Now you know that traders either buy or sell on the Forex market, but to make sure that you make the right move, you must first determine the direction in which the market is going. How is that? Of course, TREND LINES! Trend lines are the most important method to set the direction of the business and become your best friends.
Sadly, most traders assume that they draw trend lines precisely, but you will always find that they misplace them. This inevitably results in poor trading decisions.
Establishing Direction in the Forex Market
Higher Lows (HL) – Every time that the market is in an upward trend it will create a higher high, but then retrace and come back to establish a HIGHER LOW.
Higher Highs (HH) – Every time that the market swings higher, it will often retrace to form a higher low, before rallying in order to establish a new HIGHER HIGH.
Lower Highs (LH) – As the market is now in a downward trend it will continue to push lower, before having to retrace back up. The swing leaves before coming back down is the LOWER HIGH.
Lower Lows (LL) – Then as it pushes back lower, it needs to break the past, the prior LOWER LOW to create a new one! A continuation of the bearish momentum.
As you can see in the above the forex chart, the uptrend is collapsing into the downtrend, which is repeated continuously. Spotting patterns accurately can allow you to understand the overall direction of the market.
While it is possible to trade against the trend, it comes with risk; safe traders always trade with the trend. In addition, you will always use trend lines as your base before showing any other forms of analysis on your chart.