How To Draw The Best Trend Lines

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How to Draw Trend Lines Perfectly Every Time [2020 Update]

Trend lines have become widely popular as a way to identify possible support or resistance. But one question still lingers among Forex traders – how to draw trend lines?

In this lesson, we’ll discuss what trend lines are as well as how to draw them. I’m also going to share a secret way that I like to use trend lines to spot potential tops and bottoms in a market, so be sure to read the lesson in its entirety.

What Are Trend Lines?

As the name implies, trend lines are levels used in technical analysis that can be drawn along a trend to represent either support or resistance, depending on the direction of the trend. Think of them as the diagonal equivalent of horizontal support and resistance.

Exclusive Bonus: Download the trend lines PDF cheat sheet to learn helpful tips and techniques on how to draw these levels and use them to find setups.

These trend lines can help us to identify potential areas of increased supply and demand, which can cause the market to move down or up respectively.

Let’s take a look at a trend line that was drawn during an uptrend.

Notice how in the GBPUSD daily chart above, the market touched off of trend line support several times over an extended period of time. This trend line represented an area of support where traders can begin to look for buying opportunities.

Now let’s take a look at a trend line that was drawn during a downtrend.

Similar to the GBPUSD uptrend in the first chart, this AUDNZD downtrend touched off of our trend line several times over an extended period of time. The difference is that the trend line above represents a downtrend, during which time it acts as resistance, giving traders an opportunity to look for selling opportunities.

How to Draw Trend Lines Correctly

Now that we have a good understanding of what trend lines are, let’s go over how to draw them.

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The very first thing to know about drawing trend lines is that you need at least two points in the market to start a trend line. Once the second swing high or low has been identified, you can draw your trend line.

Here is an example of the first two swing lows that have been identified.

Notice in the chart above, we have two main points at which we can start to draw our trend line. Once this level has been established, we can start to look for bullish price action to join the rally.

Sure enough, just a few weeks later a bullish pin bar emerged at trend line support.

The bullish pin bar above provided a signal to traders that the trend line was likely to hold. This gave traders an opportunity to buy at support to join the rally.

3 Keys to Drawing Trend Lines Effectively

There are three very important keys to drawing effective trend lines.

  • The higher time frames will always produce the most reliable trend lines, so start there and work your way down
  • Most trend lines you come across will have some overlap from the high or low of a candle, but what’s important is getting the most touches possible without cutting through the body of a candle
  • Never try to force a trend line to fit – if it doesn’t fit the chart then it isn’t valid and is therefore not worth having on your chart

Let’s take a look at each of these in greater detail.

Use the Higher Time Frames for Drawing Trend Lines

Just about everything I do in the Forex market begins on the daily time frame and drawing trend lines is no exception. One reason I prefer the daily time frame for drawing trend lines, besides the fact that I do most of my trading from this time frame, is that it represents an extended period of time.

This brings me to a very important rule regarding trend lines. The longer a trend line is respected, the more important it becomes. A trend line that extends over two years will always be considered more important than a level that only extends the course of two weeks.

Here is a great example of a trend line that was drawn from the daily time frame.

In the GBPCHF daily chart above, after the second swing low was made we could have drawn our trend line. Notice how the market formed a bullish pin bar at the third touch from this trend line. This is a perfect example of the type of buying opportunity a trader would look for using trend line support.

Another higher time frame that I like to use to draw trend lines is the weekly chart. This time frame is great for identifying potential targets during uptrends or downtrends on the daily time frame.

Here is a great example of how a weekly trend line on CADCHF can be used to identify a potential target.

The chart above shows a weekly trend line that can be extremely useful to identify a potential target for CADCHF. The daily time frame is in an uptrend at the moment, so this weekly trend line would give us a great starting place to look for a potential profit target.

Trend Lines and Overlap

One of the most common questions when it comes to drawing trend lines is, should they be drawn from the high/low of a candle or from the open/close of the candle. The answer to this question depends on the trend line.

It’s very rare to find a trend line that lines up perfectly with highs or lows. Similarly, it’s rare to find a trend line that lines up perfectly with the open or close of each candle.

Let’s take a look at an example

Notice how the trend line above does not perfectly line up with the highs of each candle, nor does it line up perfectly with the open or close of each candle. This doesn’t mean that the trend line is invalid. What’s important here is that the weekly chart above never closed above this level.

The most important part of any trend line is to get the most touches without the level cutting off part of a candlestick. If you find that a trend line cuts through the body of a candlestick, then the trend line is likely not valid.

Never Try to Force a Trend Line to Fit

This is perhaps the most common pitfall Forex traders make when drawing trend lines. We call this “curve fitting” and it happens when a technical trader is so convinced that a level should exit, that the trader begins to try to make the level fit the price action on the chart.

This brings me to the most important part about drawing trend lines, or any support or resistance level for that matter. The best trend lines are the most obvious ones. So if a trend line doesn’t fit well, it’s probably best to move on to another pattern.

How to Use Trend Lines to Spot Potential Reversals

As promised, I’m going to show you a way that I like to use trend lines to determine the strength of a trend. Moreover, this method can help you spot potential reversal points in the market.

At this point in the lesson, you know that a trend line can be used to identify potential buying or selling opportunities. But this only works as long as the market continues to respect the trend line as support or resistance. So what happens when the market no longer respects the level?

This is where you have a chance to trade a market as it makes a turn from a major swing high or low. Below is an example of a market that broke trend line support and then retested that same trend line as new resistance.

We can see in the GBPCHF daily chart above, that the pair had respected a trend line for some time. However once the market broke trend line support, it quickly retested former support as new resistance. This retest gave traders the opportunity to sell the pair, which would have resulted in a substantial gain over the next several days as the market sold off.

One thing to note about using trend lines in this way is that it works best when you have a really clean trend line with three or more touches. The more obvious the trend line is, the better this strategy will work.

We can also use this strategy to identify a bullish reversal.

Notice how shortly after breaking trend line resistance, the market came back to retest the trend line as new support and formed a bullish pin bar in the process. This gave price action traders an opportunity to buy just before the market rallied for 800 pips.

This is a great way to use trend lines to spot potential reversals in the market. It is without a doubt one of the best ways to catch a big move as a market changes direction.

Summary

I hope this lesson has given you a better understanding of how to draw trend lines and how they can be used in the Forex market.

We’ve covered a lot in this lesson, so let’s recap some of the important points.

  • Think of trend lines as the diagonal equivalent to horizontal support and resistance levels
  • Trend lines can help traders identify buying and selling opportunities that occur within a strong trend
  • The higher time frames will always produce the most reliable trend lines, so start there and work your way down
  • Most trend lines you come across will have some overlap from the high or low of a candle, but what’s important is getting the most touches possible without cutting through the body of a candle
  • Never try to force a trend line to fit – if it doesn’t fit the chart then it isn’t valid and is therefore not worth having on your chart
  • A break and retest of a trend line that had three of more touches can often mean a reversal in the market and a potential buying or selling opportunity

General FAQ

A trend line is a diagonal support or resistance level on a price chart. It’s often used to identify support during an uptrend or resistance during a downtrend.

Start with a prominent high or low on a higher time frame such as the daily. From there, look to see if you can connect a trend line with the subsequent lows (for an uptrend) or highs (for a downtrend).

It’s okay if a trend line cuts through a small part of the upper or lower wick on a candlestick. However, as a general rule, a trend line should not cut through the body of a candlestick.

Now I’ve Got a Question For You.

Are you ready to begin using these techniques in your trading?

Then you definitely want to download the free Forex trend lines PDF that I just put together.

It contains the four keys to drawing these levels accurately. I’ve also included examples so you can see exactly how I use trend lines in my trading.

Click the link below and enter your email to download the cheat sheet.

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About Justin Bennett

Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He’s been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2020 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students. Read more.

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Trend Lines

Trend lines are probably the most common form of technical analysis in forex trading.

They are probably one of the most underutilized ones as well.

If drawn correctly, they can be as accurate as any other method.

In their most basic form, an uptrend line is drawn along the bottom of easily identifiable support areas (valleys).

In a downtrend, the trend line is drawn along the top of easily identifiable resistance areas (peaks).

How do you draw trend lines?

To draw forex trend lines properly, all you have to do is locate two major tops or bottoms and connect them.

Yep, it’s that simple.

Here are trend lines in action! Look at those waves!

There are three types of trends:

  1. Uptrend (higher lows)
  2. Downtrend (lower highs)
  3. Sideways trends (ranging)

Here are some important things to remember using trend lines in forex trading:

The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.

Like horizontal support and resistance levels, trend lines become stronger the more times they are tested.

And most importantly, DO NOT EVER draw trend lines by forcing them to fit the market. If they do not fit right, then that trend line isn’t a valid one!

How to Draw Trend Lines on a Stock Chart

Drawing trend lines is an art form that can take awhile to master. That’s because everyone has their own unique way of drawing them. There is no perfect way to draw them and it seems that no one can agree on the best way!

What is the purpose of drawing trend lines?

The purpose of drawing trend lines is to identify where possible reversals will take place. They can also signal that a change in trend may occur.

In a uptrend, draw the line along the lowest points in the trend without letting the line cross through prices. You need at least two touches of the trend line.

That is the proper way to draw a trend line. You can see how the stock found support near the line after we got a least two touches. That would have been a great opportunity to establish a position in the stock.

But the stock market is not perfect.

You can see in this chart of QQQQ, that there was a trend line break but it did not result in a change of trend. Just because a stock breaks that line that you drew, does not mean that all of a sudden the stock is going to tank!

On this chart, you can also see how a stock can often run into resistance near a trend line, if it is broken (top of chart).

So what do I do if the stock breaks the trend line? You draw another one! Like this.

Sometimes, you can have several trend lines on a single chart. Here is another example on a chart of the Dow Jones Industrials:

After the first trend line break, we discovered that a change in trend was not going to occur, so we drew another one at this point. After that, we would just wait for another touch of the line and look for a reversal pattern to establish a position.

Here are some more trend line tips

  • The more times a stock touches a trend line, the more significant it becomes.
  • It takes two touches to draw a trend line, but 3 to confirm it as being a valid one.
  • In a down trend, draw the line along the highs of prices.
  • The steeper the trend line, the less reliable it will be.
  • A trend line break does not mean that the trend will change.

I have a confession. I don’t draw trend lines very often! After you have looked at thousands of charts, you can see them without having to actually draw them in. And I certainly would never buy a stock just because it is hitting a trend line.

How To Draw Trend Lines The Right Way In 2 Simple Steps

In this post, I will show you how to draw trend lines the right way in 2 simple steps. Knowing how to draw trend lines is one important skill you need to learn as a forex trader because trendlines are important for identifying support and resistance levels.

What Is A Trend Line?

A trend line is simply a line that many forex traders use as part of their technical analysis. It is a line drawn along a trend to show support or resistance.

Here are the main characteristics of a trend line:

  • A trend line can never be a horizontal line, it must be always be diagonal line.
  • there are only two types of trend lines, a falling trend line and a rising trend line.
  • a falling trend line shows that the market is in a down trend and a break of it can mean that the market is now in changing to an up trend.
  • a rising trend line shows that the market is in an up trend and if price breaks it, it can mean that the market is now in down trend.

How To Draw A Falling Trend Line in A Down Trend

A falling trend line shows you that the market is in a down trend. A falling trend line is drawn above price.

If price heads up to the falling trend line, that line can act as zone or level of resistance for price and you can see price hit that falling trend line and move back down.

Here are the steps to draw a falling trend line in a down trend:

Step 1: Find two swing highs (peaks), these are shown as point 1 and 2 on the chart below.

Step 2: Connect point 1 and point 2 with a line

That’s it…you have a falling trend line!

How To Draw A Rising Trend Line In An Up Trend

A rising trend line shows you that the market is in an up trend. A rising trend line is drawn below price.

If price heads down to the rising line, that line can act as zone or level of support for price and you can see price hit it and move back up.

Here are the steps to draw a rising trend line in an up trend:

Step 1: Find two swing lows (bottoms), these are shown as point 1 and 2 on the chart below.

Step 2: Connect point 1 and point 2 with a line

That’s it…you have a rising trend line!

4 Important Tips For Drawing Trend Lines

Here are some tips for drawing effective trend lines:

  1. larger time frames like the 4hr, daily, weekly and monthly charts produce the most reliable trend lines.
  2. there will be situations when you draw a trend line and you will see that the candlesticks will overlap the trend lines a bit with the high or low of the candlesticks but you should never draw a trend line cutting through the body of a candlestick. That is not the right practice.
  3. Do not force a trend line to fit on your chart. If it doesn’t fit, don’t bother drawing it.
  4. Point 1 and 2 that are used to draw trend lines must be reasonable spaced apart and are obvious to every trader. I don’t like drawing trend lines from points 1 and 2 that are very close together. There will be exceptions where I can do that hopefully that would be the subject of another post. Or if you wan’t to know, make a comment below and ask me how…

Examples of Trend Lines That Over Lap

Let me show you what trend line over lap means. See chart example below:

Here’s another one:

What Happens If Trend Lines Get Intersected?

If a trend line gets intersected, it can mean 2 things:

  1. the trend has now changed
  2. it can be a false trendline breakout, the price will continue moving up in the original trend.

Here’s an example of a falling trend line break on the EURUSD pair. After the breakout, the trend changed to an up trend:

Here’s an example of a false trend line breakout:

How To Trade Trend Lines

There’s are two main ways to trade trend lines:

  1. you trade the bounce of the trend line and the trend line trading system shows you how.
  2. or you trade the breakout of the trend line and the trend line breakout trading system shows you how.

For trading the bounce of trend line, you simply wait for price to come back to the trend line at point 3, 4, 5 etc and you simply buy or sell depending on which trend line you use.

For a breakout trade on a trend line, you simply wait for price to break the trendline before you take a trade based in the direction of the breakout.

Summary

  • if horizontal lines show horizontal support and resistance levels then trend lines show diagonal support and resistance levels.
  • trend lines can help you pick great selling and buying opportunities and some times, you will be able to sell at the exact top and buy at the exact bottom. Only trend lines can help you do that.
  • trend lines in larger time frames have more significance than the ones drawn on smaller time frames.
  • if price breaks a trend line, it can mean 2 things: trend has now changed or it is a false breakout.

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