Re: How Do I Draw Trend Lines

In answer to Charles’ question,

“Are you using Demark trend lines which look at just the last 2 points, or are you using conventional trend lines based on “The lowest low to the highest low before the highest high, and vice versa for the lows? Please clarify. Thanks! :)”

The answer is ‘it depends’  I use trend lines for different reasons,

  • To mark the boundaries of channels and chart patterns
  • To find a low risk trade entry
  • To find out if price has momentum
  • To check how near or far away for purposes of upcoming diagonal support or resistance.

See charts below

With channels and patterns I am looking for obvious touches, I don’t enter trades at these points and so it doesn’t have to be very exact, I am waiting for price to reverse off these points so I can find a low risk entry.  Therefore I just ‘eyeball’ the charts.

trendline_1

 

To find a low risk trade entry I could be using the four hour charts, the hourly charts or the 5 minute charts.  It’s not very scientific, I eyeball the charts to see if there is a trend line at the entry point and how near it is to an upcoming support or resistance. How I judge a trend line at this point is if there are multiple bounces, I like to see at least two bounces and ideally more to give confidence to the breakout.  However this depends on the strength of  the level of support or resistance underpinning the entry.  It maybe that I use a trendline that is lower in quality because the rest of the entry is so strong that the extra trend line just provides a little extra confirmation.

trend_line_5

 

Trend line breaks on a higher time frame chart are there to provide confirmation of momentum so it generally doesn’t matter how accurate they are, if there is an obvious break when you eyeball it then that is proof enough.

 

However the correct placing of the trend line does become very important if there is a set up directly after the break.  If that is the case, i will draw in all the trend lines I can see to see if my trade conflicts with a trend line drawn in a different way, I will fan the trend lines, to make sure if that is the case that I have room for my entry to get to at least break even before reaching the next trend line.

multiple_trend_lines

 

 

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