Profitable Use Of Trendline To Trade Forex Trend

Most trendline users in forex trading use it most of the time to oppose the major trend.Trend is the ultimate direction of the market.It could be bullish (upward) or bearish (downward).Generally, traders that use trendlines use it to trade breakout.The corolllary of this approach is that they are trading against the major trend of the market.This explains why most of them lose more than they win.

There are two types of trendlines: bullish trendline and bearish trendline. We have a bullish trendline when we connect two or more successive higher lows with a straight line. A straight line that connects two or more consecutive lower highs is called bearish trendlines.

In the EURUSD chart above,the white straightline that was drawn to connect the resistance  points labelled 1 and 2 is a bearish trendline because it has a negative slope. Generally, buyers would be looking for price to breakout to the upside of this line. Most buyers would enter the market once this bearish trendline breaks. This means they will buy at point A as seen on the chart. This will mean to them that the the reign of the bears is over.They will buy big time and set big tp.Of course they need to set big tp since their sl is not tight.Unfortunately, price only managed to reach point B and resumed the fall mightily.This has been the calamity of the trendline breakout traders.

Instead of trading breakout of trendlines indiscriminately,forex traders have to get creative about the use of trendlines.

In the GBPUSD chart above, we have a steady donwtrend indicated by the white straight line drawn by connecting resistance points 1 and 2  as shown.The trendline was threatened at point point 5 by the minor uptrend indicated by the blue straight line.The objective of trend traders is not to trade the break of the white trendline (major trendline), but to sell when the blue trendline (minor trendline) is broken by the price. This is the way to reduce the losses and boost gains when using trendlines. Hope this helps alittle.


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