Forex Trading Style - Trendlines Versus Horizontal Lines

Published: 26th May 2011
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In developing a personal Forex trading style it is likely a trader will experiment with several technical indicators over time but eventually end up with just a handful of favorites which are employed on a daily basis.

The use of trendlines is taught in just about each training course out there and well-liked opinion appears to suggest they need to take a reasonably prominent place in any productive Forex trading style.

This post begs to differ. Yes, trendlines can be beneficial but in my opinion they are superseded by horizontal lines.

What is the distinction?

Trendlines are basically lines drawn across the lows of bars or candles in an uptrend, or lines drawn across the highs of bars or candles in a downtrend.

One Forex trading style may possibly use the Tom DeMark strategy of drawing trendlines which gets quite distinct by joining the most recent low with the previous lower low (searching left on the chart) and then extending the line forward (seeking appropriate on the chart) for an uptrend.

For a downtrend join the most recent high with the previous greater high (seeking left on the chart) and then extending the line forward (looking suitable on the chart). These trendlines then give indications of a breakout as soon as they are broken.

Horizontal lines are just lines drawn across highs and lows on a chart marking support and resistance.

Why are horizontal lines superior?

The perfect Forex trading style is basic and effortless to use and it helps if the charts we are studying are clear and reasonably uncluttered.

Drawing several trendlines can obscure what is actually happening with price action. True, some traders just draw trendlines across primary highs and lows and ignore the mini swings. Nevertheless, trendlines have to be continually re-drawn and updated as cost action continues. For a lot more details about "Trading The Forex", you should go to: Trading The Forex

On the other hand, just putting in a horizontal line on key levels of support and resistance is easy and uncomplicated to see. They have excellent significance on the greater time frames, especially the 4 hour or the every day charts.

Of specific value is marking the prior day's high and low and watching cost action around those levels. It is achievable to catch 10 to 20 pips typically as price tests the previous day's high or low and pulls back. Of course, the probability of a profitable trade becomes greater if the previous day's high or low also coincides with other elements such as a Fibonacci level or pivot point.

Why are horizontal lines probably far more significant than trendlines?

When creating your Forex trading style it is very crucial to look beyond candles. Trading is significantly far more than that. The prosperous trader understands what is going on behind the scenes. Candles and cost action is simply an outward manifestation of what is happening across the desks of thousands of traders across the globe who deal with billions of dollars worth of flows and orders.

A prior high or low in cost action, especially on the higher time frame, means that the bulls or the bears won the battle in that trading session. If a number of traders committed a big quantity of equity to a currency at a specific price, then obviously that price point is going to be fiercely defended in the future by those traders.

So horizontal lines drawn across levels of support and resistance mark quite actual points at which we can expect a reaction from price.

Trendlines on the other hand tend to be far more speculative in my opinion. Watch cost reaction at horizontal lines of support and resistance as opposed to trendlines and you will notice that price respects key levels of support and resistance a lot more frequently than trendline levels.

Really should trendlines be included in your Forex trading style?

That is an individual matter. They can surely be valuable in offering confirmation of a trade soon after taking into consideration other aspects. But to trade on trendlines alone can be extremely risky. On the other hand, it is achievable to trade practically entirely on what support and resistance tell you at certain times when key levels are becoming tested.

Normally although, a profitable Forex trading style will combine a number of aspects. My favorites in order of significance are:

  1. Support & Resistance levels on the higher time frames

  2. Fibonacci retracement and extension levels

  3. Pivot points

  4. Candle patterns

  5. 200 EMA (Exponential Moving Average)

If you are in the procedure of developing your own Forex trading style you might arrive at a unique priority list. Why not experiment with horizontal support and resistance lines and trendlines and determine for yourself which gives the most dependable indication of cost movement? Forex Trading Style - Trendlines Versus Horizontal Lines

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