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Article Summary: The EURUSD is approaching a 4Hour trendline. Learn how to trade support with today’s Forex trading lesson.

Drawing trendlines is an important technical technique for Forex traders to master. These lines can be drawn on any chart and effectively provide levels of support and resistance for trading. The key is to match up a series of higher lows in an uptrend and lower lows in a downtrend or a series of highs in an uptrend. Let’s look at a detailed example of drawing and trading tredlines using today’s price on the EURUSD.

Below is an excellent example of a trendline, developing on the EURUSD 4Hour graph. This line of support is found by connecting the lows from July 15th and August the 2nd. It may be difficult to find the points on your graph to connect at first but remember that not every trader will draw their lines the same way. The key is to identify at least two low points on your graph to connect in an uptrend. After these levels are joined, support can be extrapolated by then extending the trendline across the chart of our choice.

Learn Forex – EURUSD Trendline

The_EURUSD_Moves_to_Trendline_Support_body_Picture_2.png, The EURUSD Moves to Trendline Support

(Created using FXCM’s Marketscope 2.0 charts)

Once the trendline is drawn, traders will begin looking for areas to enter new positions. The first opportunity to trade a trendline is on the third touch of support in an uptrend. Traders will look to buy the market at this point, while looking for price to then extend to higher highs. To assist in the timing of orders, traders may also use a technical indicator such as an oscillator. In today’s example we are going to time an entry with the trend using CCI (Commodity Channel Index).

Below you can again see our EURUSD 4Hour trendline, but this time we have attached the CCI indicator. Traders will execute when prices bounce off our trendline and CCI crosses back above an oversold value of -100. An oversold reading of -100 means that CCI has pulled back to a relative low compared to past price. This allows traders to better time their entries, by buying on a dip and entering into the market when momentum returns.

Learn Forex – EURUSD & CCI

The_EURUSD_Moves_to_Trendline_Support_body_Picture_1.png, The EURUSD Moves to Trendline Support

(Created using FXCM’s Marketscope 2.0 charts)

Lastly, when trading trendlines it is always important to consider risk. In the event that price breaks underneath our supported trendline traders should look to exit all positions. Currently our trendline is providing support for the EURUSD near 1.3275. If price breaks down toward lower lows, traders should look to exit any long positions through the use of a stop order as depicted above.

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter @WEnglandFX.

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