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Tactics for Trading Trendlines

Tactics for Trading Trendlines

Walker England, Forex Trading Instructor

Talking Points

  • In an uptrend, trendlines develop by connecting a series of lows
  • Depending on the trend, trendlines will act as support or resistance
  • Traders can use an oscillator, like CCI, to time market entries

Drawing trendlines is an important skill for every Forex trader to master. These lines of support and resistance can be drawn on virtually any graph, regardless of the timeframe which makes them incredibly useful in trend based strategies. The key is to match up a series of higher lows in an uptrend and lower lows in a downtrend. For today’s lesson, we will be look at a detailed example of drawing and trading trendlines with the AUDUSD.

Below is an excellent example of an active trendline on a AUDUSD 1 Hour chart. Since the price trend is headed up, the trendline is created by connecting a series of lows on the chart. The key to this process is to find the first two points and connect them together. From this point, simply extrapolate the trendline. Now you will have an ascending line of support to work with when you go to execute your trading strategy.

Learn Forex – AUDUSD Trendline

Tactics for Trading Trendlines

(Created using FXCM’s Marketscope 2.0 charts)

Once the trendline is drawn, traders will begin looking for areas to enter new positions. One of the easiest solutions is to trade price as it bounces off support. This process can be aided through the use of an oscillator to time when momentum is returning in the direction of the primary trend. Let’s take a look at an example.

Below, you can again see our trendline developing on the 1Hour AUDUSD graph. However, this time we have added the CCI (Commodity Channel Index) indicator. Traders will time their entries into the market when prices bounce off our trendline and CCI crosses back above an oversold value of -100. These dips in the market often happen after a breakout, and traders will be ready to place new buy orders in expectations of price making a new high.

Learn Forex – AUDUSD Trendline and CCI

Tactics for Trading Trendlines

(Created using FXCM’s Marketscope 2.0 charts)

If you’re not familiar with the CCI indicator, that’s ok! It may be similar to other trading tools you are already using. To learn more about the indicator you can also sign up for the CCI trading course linked below. Registration is free, and the course will allow you to work through a series of videos, checkpoint questions, and access more CCI strategies. Get started using the link below.

The DailyFX CCI Training Course

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---Written by Walker England, Trading Instructor

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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