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Technical Analysis Tools: Indicators And Trends
Make the most of trend lines
For most traders the trend is their friend.
The question is what do you do if your trend suddenly reverses and you have entered at a point causing you a loss.
You may begin to wonder if you can trust the trend at all?
The fault does not lie in the trend. It lies in using the trend alone without first confirming with the help of technical indicators how strong or sustainable the trend is.
In fact, currencies have a natural tendency to move in trends because of large-scale factors such as international capital flow and macroeconomic factors that have a major role to play in the foreign exchange market.
If you are a trader, a trend is a reasonable prediction of the price response at various levels of resistance and support plotted over time. Trend lines only serve to emphasize these levels with the support level acting as the floor and the resistance level forming the ceiling. When the currency prices break through any of these levels, it can be taken as a signal for the trend to continue in the direction of the movement.
However, it is never easy to be right about trends when they are just developing while generating trend lines using historical charts is never difficult. Nevertheless, trend lines are an excellent way of starting to identify new trends, by finding new support and resistance levels.
To make the most of trend lines, first draw them over fairly long time frames, say daily or even weekly charts. Then start doing so for shorter and shorter time frames, say hourly or every two hours. This way, you will be able to identify the more important long-term trend rather than make hasty trade decisions based on short-term trends.