Forex training is provided on a number of topics, even the most basic like trend lines because it can be helpful to you. For someone who has never traded in a financial market seeing a chart with various lines can be confusing. Since forex is about trading currency pairs, this can also make one worry about how to trade properly versus the easier stock market. Trend lines are about the most common type of technical analysis you will come by in forex. They are also one of the most underutilised because it seems complicated to use them. For accuracy they are the most accurate as long as you draw them right. There are two mistakes individuals use when drawing trend lines.
Forex Training on Trend Line Mistakes
The first mistake is that the line is not drawn correctly. The other is to make the line fit the market instead of allowing the market to fit the line. Sounds complicated, right? Do not worry, as forex training is going to explain what this all means.
Take a forex chart and see what the lowest point was for a currency rate. Say this rate was 1.3450 and the chart shows the price action moved up. You would draw a trend line from the low point in a vertical position until you hit the next low point. You take the top of a peak and draw a line down until you hit the top of the next peak.
Sounds simple, right? You either have a slash / that goes from the low to the next low or you take a reversed slash that goes from high to the low high for a down trend. Basically, forex training wants you to find the support and draw an uptrend line. Then you find the resistance and draw a downtrend line. This shows you that you had a certain point in which the rate did not go below or above. You can have sideways trends in which case the support and resistance trends lines are not up or down, but horizontal. All you do is find two major tops or bottoms and draw a line that connects them. It is just that simple.
Forex Training Pointers on Drawing Trends
Even though you need two points to draw a trend line it is always best to have three tops or bottoms in order to confirm the trend. In forex training you will later learn this is head and shoulders or triple tops/bottoms.
The steeper the line is drawn the less reliable you will find that line because chances are that line is on a quick run with a very quick break.
The more a trend line is tested the stronger it will be. Lastly for forex training never forget that you are not drawing the lines to fit the market, but that you are drawing them based on the market. If you cannot make the line fit then the line is not a true trend. You always want to confirm a trend before you act on it.