Trend lines are not tan lines. Nor are they anything related to wrinkles or bad health. Trend lines are wonderful pieces of data that can be used in Forex trading. Well, actually, these kinds of trend lines are pretty much useless anywhere else but in Forex trading. When you are absorbing all the technical analysis you can, one of the common pieces of that puzzle is in the form of trend lines.
Okay, we’ve said trend lines several times now without really explaining what they are. The name should tip you off that they are lines used to identify and record trends. See how easy that was? But there is a tricky part. Depending on how the trend lines are drawn, they can be good data or pretty much useless data.
When we refer to how they are drawn, we are not saying crayon or pencil lines are less effective than those drawn in ink or with permanent markers. In fact, the way trend lines are drawn has nothing to do with the pen or pencil one may be tempted to use.
Peaks And Valleys Are Not Just For Maps
Trend lines are used to map out trading topography. So, to get a little more detailed on this, uptrends and downtrends are what are recorded. An uptrend line is used along the bottom of a valley or support area. A downtrend line runs along the top of a peak or easy to identify resistance area. That’s really the gist of it.
Then There’s The Different Types of Trends
You had to see this coming. There are various types of trends that can be mapped for your technical analysis. We’ve already mentioned two of them. Uptrends show the higher lows recorded. Downtrends reveal the lower highs and the Sideways trends show different ranges of prices recorded.
But What Really Makes A Trend?
So if one person jumped off a bridge it would be very likely considered an accident. If two people jumped off the same bridge a few days apart it could be considered a series of unfortunate circumstances. If three people jump off the same bridge over a short period of time you pretty much have the start of a very unusual trend taking place. In Forex trading there’s more trends than flukes. Well, that depends on who you talk to about it. Still trends don’t just happen. It generally requires three tops or bottoms to form a trend. The steeper a trend line is, the less reliable it can be. The peaks and valleys tend to become stronger the more times they are tested (you may want to jot that down for future reference). Plus, don’t try to make a trend out of what is more or less a fluke or two. Trends do emerge and they are typically pretty obvious when they do. As we’ve been telling you all along, the more you know, the better a Forex trader you will become. Identifying and understanding trend lines are part of that process.