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Thursday, 11 June 2015

Different Trend Lines Part 2


Basic Trading Concepts Defined

Our series on TREND LINES in the Forex market continues with part 2. Today we focus on explaining the psychology behind trend lines, what information the trend line angles provide, how trend lines build chart patterns, and how to use trend lines for breaks and bounces.

THE ANGLE OF TREND LINES


The speed and ‘sentiment’ of the market can be measured by the angle of trend lines. Or in other words, traders can use trend lines to measure if there is momentum in the market – and if so, how much momentum. Basically, the angle reveals not only the direction of the market (slope is trend direction) but also its pace and speed.



That information is important for Forex traders because it helps distinguish a swing high and swing low  from being either corrective or impulsive. And knowing this then helps traders with trading breaks or trading bounces. Let me explain further.
Trend lines can be roughly categorized in steep, moderate, shallow, and flat trend lines. It is not needed to have an exact measurement of the angle; a rough idea what the angle could be is enough. However, here are more precise guidelines:
  1. SHALLOW trend line has a sloop of 0-15 degrees OR 2 to 4 o’clock angle
  2. MODERATE trend line has a sloop of 15-40 degrees OR 4 to 5 o’clock & 1 to 2 o’clock angle
  3. STEEP trend line has a sloop of 40 degrees + OR 5 to 6 o’clock & 12 to 1 o’clock angle
FLAT trend has no angle.


Today’s post focuses on shallow trend lines, whereas part 3 will discuss moderate and steep trend lines.

SHALLOW TREND LINES AND HOW TO TRADE THEM

A shallow trend line means that the market is in a corrective phase. Contrary to impulsive price action, the corrections are more complex and can become more complicated. The corrective phases when price just chops around or floats sideways lasts a great deal longer than impulses- roughly 3 to 4 times as long.
1. Price is not breaking the tops and bottoms, which is a chart pattern called a contracting triangle or wedge. When placing a trend line on tops and bottoms, the two trend lines have the opposite direction but have roughly the same shallow angle.




Price is breaking the top OR bottom to one direction, which is a chart pattern called a bear or bull flag. When placing a trend line on tops and bottoms, the two trend lines have the same direction and roughly the same shallow angle (but it is ok if the angle of the top and bottom line differ from each other).
3. Price is breaking both the top AND bottom, which is a chart pattern called the expanding wedge – although quite rare compared to the patterns in point 1 and 2. When placing a trend line on tops and bottoms, the two trend lines have the opposite direction and the angle could vary in its angle (but it is ok if the angle of the top and bottom line differ from each other).

To be continued on Friday.

Tips and Strategies from Top Traders. Go to:  http://www.tradingprofits4u.com/


Reference: Chris Svorcik

1 comment:

  1. Drawing trend lines is one of the few easy techniques that really WORK. Prices respect a trend line, or break through it resulting in a massive move. Drawing good trend lines is the MOST REWARDING skill.

    The problem is, as you may have already experienced, too many false breakouts. You see trend lines everywhere, however not all trend lines should be considered. You have to distinguish between STRONG and WEAK trend lines.

    One good guideline is that a strong trend line should have AT LEAST THREE touching points. Trend lines with more than four touching points are MONSTER trend lines and you should be always prepared for the massive breakout!

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    Chart patterns such as "Triangles, Flags and Wedges" are price formations that will provide you with consistent profits.

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