Introduction to Forex 5 - How to trade using trend lines in the foreign exchange market?

Now that you know the basics of trendlines, it's time to apply these simple but useful technical analysis tools to your trading.

Since we are committed to making what we teach easy to understand in this tutorial, we have divided the market behavior that can occur in the context of price testing support and resistance levels into two categories:reboundandbreakthroughThis will also provide guidance for our trading strategy.

rebound

Some retail forex traders often make the mistake of placing an order directly at a support or resistance level and waiting for their trade to materialize. Of course, this approach sometimes works, but the premise of this trading method is that the price will stabilize at a support or resistance level, rather than penetrate or break through it.

You may be thinking, "Why can't I place a limit order right on the trend line? I'm sure this is the best price."

When we catchreboundWhen trading, we will find some information that will confirm that the support or resistance level will hold. Before we enter, we will wait for the price to experience the first timereboundRather than simply buying or selling on a trend line.

The advantage of this approach is that it avoids sudden and rapid price fluctuationsbreakthroughA support or resistance level. Experience tells us that grabbing a falling knife empty-handed can make people bleed.

PS: Support; Entry order Limit order; stop Loss; Trend line resistance

breakthrough

In an ideal world, support and resistance levels will always remain stable. In a perfect trading world, whenever the exchange rate hits a major support or resistance level, we can just get in or out of the market and make huge gains as a result. However, the truth is that these support or resistance levels are usuallybreakthrough。

Therefore, just using the pricereboundTrading is not enough. You should also know that no matter when the support and resistance levels are brokenbreakthroughMeasures that should be taken.

At support or resistance levelsbreakthroughIn this case, there are two trading methods:Aggressive Trading ActandConservative Trading Act。

Aggressive Trading Act

breakthroughThe easiest way to trade when a market occurs is to be effective at the pricebreakthroughSell or buy when in a support or resistance area. Pay attention to the keyword "effective" because, only when the price is completelybreakthroughWhen there is a support or resistance level, we have a good reason to buy or sell.

When the exchange ratebreakthroughAfter the support or resistance level, the effect we hope to see is as crisp as a martial arts master's one-handed brick.

PS: Support; Entry order Limit order; stop Loss stop

Conservative Trading Act

Let's imagine a scenario where you expect EUR/USD to move after testing a certain support levelreboundGo higher, so plan to go long EUR/USD. However, soon after, the exchange rate falls below the support line and your account starts to lose money as a result.

At this moment, you are...

1. Accept reality and position squaring?

2. Continue to hold, expecting the exchange rate to rise again?

If your choice is the second, then you will easily understandConservative Trading ActThe essence of.

Remember that no matter when you choose position squaring, you are trading in the opposite direction to your previous position. For example, if you are trading EUR/USD long at break-even, that means you are shorting EUR/USD at the same time with the same amount of money.

Now, if it has beenbreakthroughThere is enough selling near the support line, and the price action will reverse and start to fall again. This phenomenon is also supported bybreakthroughThe main reason for the later change to resistance level.

Of course, taking advantage of this phenomenon requires enough patience to trade. You need to wait until the price has retraced to thebreakthroughThe support line andreboundAfter entering, rather than atbreakthroughEnter immediately thereafter.

PS: Support; Entry order Limit order; stop Loss; pullback

Traders need to pay attention to:

This does not always happen. "Backtesting" isbreakthroughYour support or resistance level doesn't always happen. Sometimes, the price will only move in one direction and leave you behind. In light of this, we always need to place stop-loss orders and never hold on to a glimmer of hope.