Trendline: The Key to My Trading Success or Failure

The market is turbulent, and every day I watch those mercilessly fluctuating Candlesticks, I always wonder: "Who can truly grasp the pulse of this crazy market?" After years of trading experience, I found that trend lines are my most effective weapon. It's not some complex indicator, just this simple line, yet it allows me to see the essence of the market.

What is a trend line? My understanding

A trend line is a straight line that I subjectively connect on the chart to determine the direction of market movement. In simple terms, it connects multiple highs or lows with a line to indicate whether this thing is going up or down.

Looking at the fancy theories of those so-called professional analysts, I often scoff. The greatest charm of trend lines lies in their subjectivity; what you draw will definitely be different from what I draw, and we will see a different market. This is the true essence of trading.

Uptrend Line: How Do I Draw It

An ascending trendline connects those continuously rising lows. Find two low points (the second must be higher than the first), draw a line, and you're done!

For example, the GBP/USD market in March 2018 started to rise at the beginning of the European session on March 1, and continued to climb until March 9. Connecting the two bottoms, a trend line appeared. Later, when it retraced to this line on March 16, it surged again, allowing me to capture a perfect buying point.

Downtrend Line: My Hunting Tool

A downward trend line connects those consistently decreasing peaks. Find two high points (the second one lower than the first), draw it, and that's it!

The market trend of GBP/USD from January to February 2018 is a clear example. It started to decline at the beginning of the US trading session on January 25, and there was another wave of decline on February 2. Connecting these two high points creates a descending trend line. Later, when it touched this line on February 16 and 26, it was both suppressed downward, and I made a profit by shorting here.

The True Value of Trend Lines

The biggest use of trend lines is to help me determine reversal signals. Looking at the GBPUSD chart, it was originally a clear bearish trend, but on March 13, it suddenly broke above the downtrend line, completely destroying the bearish position. Then on March 16, when the market retested the original trend line position, it surprisingly became support, and the bullish trend was initiated. At this point, if you don't turn bullish, what are you waiting for?

On the contrary, look at that obvious bullish trend, where every pullback to the trend line received support. But on September 21, a large bearish candlestick broke the entire trend, and when it later retested the original trend line, it turned into resistance. This tells me: short immediately!

Trendline Usage Tips

The example of the Euro to US Dollar is the most obvious. It started to rise at the end of February 2020, forming a nice upward trend line. In the Asian session on February 28, there was a pullback, and when it touched this line during the US session, it bounced back; on March 4, during the US session, it touched the trend line again and rose once more. These positions are the best buying points.

The downtrend is the same; the Euro to US Dollar in March 2020 is a good example. Each time it retraced to the downtrend line, it was suppressed and continued to decline. These resistance levels are the natural entry points for my short positions.

Trend Channel: Double Line Power

The trend channel is created by drawing two parallel trend lines that frame the price movement within a range. This is more useful than a single trend line, as it can identify both support and resistance levels simultaneously.

When the price fluctuates within an ascending channel, touching the lower boundary could be a buying opportunity; touching the upper boundary may indicate a selling moment. Conversely, in a descending channel, touching the upper boundary might present a short-selling opportunity; touching the lower boundary could signal a short-term rebound.

Moreover, once the channel is broken, it often signifies an acceleration or reversal of the trend, which presents the most profitable opportunity.

Overall, trend lines are just that simple and practical. You don't need any fancy features from exchanges; all you need is a chart and a pen (now it's a mouse), and you can grasp the pulse of the market. Although there are many drawing software available now, like TradingView and MT4/MT5, technology is always just an aid; true trading experts rely on their keen intuition for trends.