Validating a Trendline
Student’s Question:I really didn't understand the meaning of "we need three touches of price action for a support line", could you please break it down for me.Instructor’s Response:
Sure…For a trendline to be valid, we need two points of contact and then we would trade on third test of that line. Once the third touch occurs, provided that the candle does not close above/below the trendline, we would take a position at the open of the next candle with a stop below/above the trendline.The first point of any line is simply a random point on a chart. When a second point appears, no matter where it appears on the chart, it can be connected to the first by a straight line but that really tells us nothing. When the third point occurs and it can be connected by the same straight line that connects points 1 and 2, now we have something from which we can trade.See the historical chart on the USDCHF below for a visual...
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.