🔍
Trading Trendlines & Channels In Forex & Stock Market (Price Action Strategies) - YouTube
Channel: The Secret Mindset
[0]
It is easier to see the trend on a chart after
it has occurred.
[5]
Trying to identify the trend as it is developing
is much more difficult.
[10]
This monthly chart shows a sustained uptrend
trend, but there is a slowing of that trend
[14]
toward the end.
[16]
Will the upward trend continue?
[18]
Will prices begin a downward trend?
[20]
Will they move sideways?
[22]
The purpose of technical analysis is to apply
tools that provide the best chance of identifying
[27]
the future direction of prices.
[29]
If wrong, these tools also control the size
of your loss.
[33]
So, it’s imperative you don’t over complicate
your analysis with useless data or indicators
[39]
that don’t add value to your charts.
[41]
Today, we’ll talk about trends, trend lines
and price action and I’ll show the easiest
[47]
way to analyze a chart to have a better understanding
of what is really happening on it.
[52]
Before we continue, if you’re new here,
make sure you subscribe, hit the notifications
[57]
bell and leave a like to show your support.
[62]
First of all, the time interval is a key element
when identifying a trend.
[67]
Forget about 15 minutes or 5 minutes charts
and go on the daily chart.
[72]
Weekly and monthly charts show the major trends
even more clearly than daily charts.
[78]
Longer-term charts remove a large part the
noise that interferes with seeing the bigger
[83]
picture.
[85]
The most successful traders and investors
start by evaluating a weekly or monthly chart,
[91]
and then apply the lines and values developed
on those charts to a daily chart.
[96]
The weekly chart provides direction, whiles
the daily chart, or even the h4 or hourly
[102]
charts, are used for timing entries and exits.
[107]
In order to successfully determine a trend,
you must master the trend lines.
[112]
Trend line analysis is often underestimated
by traders because it is perceived as being
[117]
subjective.
[118]
A trend line determines the current direction
of price movement, and often identifies the
[124]
specific point at which that direction will
change.
[128]
I would say that the trend line is the most
popular and recognized tool of chart analysis.
[133]
Now, how to draw trend lines.
[136]
1.
[137]
In an uptrend, you look to connect the lows
of the price.
[141]
In a downtrend, you connect the highs of the
price.
[144]
A valid trend line connects two or more points
that define the trend.
[150]
2.
[151]
As I said before, you start drawing trend
lines on higher time frames and the carrying
[156]
them forward to shorter time frames.
[158]
3.
[159]
In this way, you identify the areas of support
and resistance, the most significant levels
[165]
being on the higher time frames.
[168]
An uptrend line has a positive slope and acts
as support.
[173]
As long as the market price remains above
this trend line, the uptrend is considered
[178]
intact.
[179]
A close of the price below the uptrend line
suggests that a change in trend could be on
[185]
the cards.
[186]
A downtrend line has a negative slope and
acts as resistance.
[191]
As long as the market price remains below
this trend line, the downtrend is considered
[197]
intact.
[198]
A close of the price above the uptrend line
suggests that a change in trend might happen.
[205]
So here is a classic downwards trend line.
[207]
It connects the highest price with other price
swings.
[213]
When prices move through the trend line heading
higher, the downtrend has been penetrated.
[219]
This may end the downtrend or cause a new
downtrend line to be drawn.
[225]
In this case it was the end of the downtrend.
[230]
The trend lines are basically support and
resistance lines.
[233]
An upwards trend line, drawn across the lows,
is a bullish support line because it defines
[238]
the lowest price allowed in order to maintain
the upwards trend.
[243]
The downward trend line, drawn across the
highs, is a bearish resistance line.
[248]
Proper use of these basic lines is essential
for identifying the overall direction of the
[254]
market and understanding the patterns formed
as prices move from one level to another.
[261]
But how do you know the relevance of a trend
line.
[264]
I personally have 3 concepts I look at a trend
line: its length, its number of retests and
[272]
its ascending or descending slope.
[274]
So, the length of the trend line is an important
factor.
[279]
A 3-4 weeks trend is of minor importance if
the trend lasts for 1-2 years, for example.
[287]
A break below or above a trend line with an
important length represents an important signal.
[293]
Also, a trend line is more important if it
has been retested many times.
[299]
That’s why a trend line acts like a dynamic
area of support or resistance.
[305]
Each line retest contributes to the importance
of support or resistance.
[311]
Extending the trend line after a breakout
is very important because its role of dynamic
[317]
support / resistance will reverse.
[321]
This means that if an uptrend line retested
several times in the past is broken to the
[327]
downside will become a resistance area.
[331]
Also, if a downtrend line retested several
times in the past is broken to the upside
[339]
will become a support area.
[343]
In what concerns the slope, a very steep trend
is difficult to be maintained and is therefore
[349]
likely to be easily broken, even by short
lateral movements.
[353]
All the trend lines are eventually broken,
but the steepest trend lines are the soonest
[358]
broken.
[359]
Usually, from my experience a breakout of
a trend with a steep slope is more likely
[366]
followed by a trend continuation than a reversal.
[369]
A steep trend line is the result of an accelerated
increase or decrease in the short term.
[376]
In this case, the trend line will have a higher
angle and is less likely to provide solid
[382]
support or resistance.
[384]
Now, once the support and resistance lines
have been drawn, a price penetration of those
[391]
lines creates the basic trend signal.
[394]
I prefer to add the additional rule that once
the price has penetrated a trend line, it
[401]
must remain penetrated for some time period
in order to confirm the new trend because
[408]
most false penetrations correct quickly.
[413]
In actual trading, the price crossing the
trend line is not 100% clean.
[419]
Most often, prices that have been moving higher
will cross below the trend line, then re-cross
[425]
moving higher, then move lower again.
[428]
The trend line is an important turning point,
and there may be indecision that is reflected
[434]
in a sideways price movement before prices
reestablish a trend.
[439]
To deal with this situation, you could do
one of the following:
[444]
• wait a set time period to confirm that
prices remain on the new side of the trend
[450]
line.
[452]
• wait for a reversal after the penetration,
then enter a trade in the new direction.
[461]
• create a small safety zone (called a band
or channel) around the trend line and enter
[467]
the new trade if prices move through the trend
line and through the safety zone.
[474]
Each of these techniques requires a delay
before entering.
[478]
A delay normally benefits the trader by giving
a better entry price; however, if prices fall
[485]
quickly through an upwards trend line and
do not reverse or slow down, then any delay
[492]
will result in a much worse entry price or
no entry at all.
[497]
Unfortunately, most of the biggest profits
result from breakouts that never pull back.
[503]
That’s the reality.
[505]
I know you want the textbook breakout, with
the price retesting the breakout level, but
[511]
in some cases the price just keep on going
and never reaches the breakout area.
[517]
Now, to get a better understanding of the
trend you could create a channel with trend
[522]
lines.
[523]
A channel is formed by a trend line and another
line drawn parallel to the trend line enclosing
[529]
a sustained price move.
[531]
The purpose of the channel is to define the
volatility of the price move and establish
[537]
reasonable entry and exit points.
[540]
Up to now, the trend line has only been used
to identify the major price direction.
[546]
A long position is entered when the price
crosses a downward trend line moving higher.
[552]
The trade is held until the price moves below
the upwards trend line.
[557]
However, it is more common to have a series
of shorter trades.
[563]
While the biggest profits come from holding
one position throughout a sustained trend,
[569]
a series of shorter trades is also a viable
alternative if you are an active trader.
[575]
Just be aware that trend lines using very
little data are essentially analyzing noise
[582]
and have limited value.
[585]
So before a channel can be formed, the bullish
or bearish trend line must be drawn.
[591]
A clear uptrend line requires at least two,
and preferably three or more major low points
[596]
on the chart.
[597]
These points do not have to fall exactly on
the line.
[601]
Once the trend line is drawn, the highest
high can be used to draw another line parallel
[607]
to the upwards trend line.
[609]
The area in between the two parallel lines
is the channel.
[614]
In theory, trading a channel is a simple process.
[617]
We buy as prices approach the support line
(in this case the upwards trend line), and
[624]
we sell as prices near the resistance line.
[628]
These buy and sell zones should be around
the bottom and top 10%-15% of the channel.
[635]
If prices continue through the lower trend
line after a long position has been set, the
[641]
trade is closed.
[644]
In a downward trending channel, it is best
to sell short in the upper zone and cover
[649]
the short in the lower zone.
[651]
Buying in the lower zone is not recommended;
trades are safest when they are entered in
[658]
the direction of the trend.
[660]
Remember, trend following is the most profitable
and consistent trading style.
[665]
The reality is that no one knows how high
or how low a market will go.
[672]
No one knows when a market will move.
[675]
But we can follow a trend to increase our
chances to profit from the markets.
[681]
If you enjoyed this type of content, don’t
forget to subscribe, click the bell icon and
[686]
leave a like to show your support.
[688]
Until next time.
Most Recent Videos:
You can go back to the homepage right here: Homepage