Forex Trendlines and Forex Trendline Analysis

Forex Trendlines and Forex Trendline Analysis

Learn When To Get In/Out Of Trades Using Trendlines

Trendlines

I'm sure you've heard of forex trendlines and trendline analysis. These are valuable forex technical analysis tools traders should use when trading currencies. Trendlines are lines drawn on a forex chart to indicate an uptrend or downtrend. These forex trendlines go by different names. Some are called Tom DeMark trendlines, or common sense trendlines etc. The use of trends is to determine the relative direction of prices in a market. They are identified as uptrend, downtrend or flat. Without a trend, prices will remain flat and unchanged. For trading to be profitable, movements in price must occur or trend. FOREX, though a very trendy market has many explosive short-term price movements that can lead to significant profit opportunities. Conversely, these movements can also lead to significant losses. You've most likely heard the phrase, “the trend is your friend ”. Keep this in mind when forex technical trading.

There are basically three (3) trends to look for; uptrend, downtrend and sideways trend. There are many variations of trends and there are lots of books out there too. I will go over the basics of forex trendlines, but if you want to learn more, you should pick up a book or two on the subject. My favorite trendline analysis book is from Tom DeMark entitled The New Science of Technical Analysis. The first chapter is all about trendlines and he does an excellent job teaching you how to locate price points to draw effective trendlines on your forex charts. The rest of the book has some great forex technical analysis information but chapter 1 is why I bought the book.

Ok, here we go:

I. Uptrend – In an up trend the base currency is going up in value:

 Examples of Uptrends in Forex Chart Analysis

 

II. Downtrend – Needless to say, in a downtrend the base currency is going down in value:

 Examples of Downtrends in Forex Charts

 

III. Sideways Trend – The price is moving within a narrow range and aren't really increasing or decreasing in value. Price is kind of channeling sideways.

 Sideways Price Movement Using Forex Charts

As I mentioned, there are different kinds of forex trendlines and some are more accurate than others. If you want to simply determine the current trend, a common sense trendline works just fine. If you're trying to do a price projection or determine a trend reversal, you need to use real trendlines when forex technical trading.

These are great tools to use but if you use them incorrectly, they will hurt you more than they'll help. Remember to take a look at Tom Demarks book The New Science of Technical Analysis because he was the pioneer in trendlines and forex technical analysis and he teaches these subjects very well.

 

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