Trend Lines are the most powerful technical analysis tools. They allow you to gauge the trends direction, identify potential reversal levels and enter trades with low risk and high reward. In this article, you will learn how to improve your trend line trading with 3 power tips.
Tip #1: Trade only Trade Lines with 2 Peaks
Demand that each line you trade will be tested at least twice before basing any trades on it. This ensures that the line is indeed strong and able to generate profitable trading signals. If you trade when price bounces on the trend line, it is okay to enter on the third bounce, after two tests of the trend line. As a rule of thumb, avoid technical levels that have not been tested at least twice. While it may be profitable to trade levels that were tested only once, it takes a lot of experience to properly identify and know which to trade and which to ignore.
Tip #2: Don't Trade Trend Lines which are Too Steep
If the line is too steep do not trade it - it is probably not a strong line and will break easily. Avoid lines that are too steep and trade only the ones with reasonable but average slope - to increase your profitability.
Tip #3: Demand Strong Bounces
Demand that each bounce on the trend line results in a strong reversal to the opposite direciton. If price touches a trend line and retraces slowly - it is a sign that the trend line is weak and prone to break. Demand that the lines you trade are psychologically strong so when price reaches them the trade will be strong and fast. Do not waste your time on trend lines that are of zero importance and effect.
These tips will help you to identify trend lines and more importantly - help you decide which are worth trading and which are weak, and should be ignored. The most important decision in trading is not what to trade, but what not to trade.
TrendLineX(TM) is a powerful indicator that trades trendlines automatically. It automatically calculates stop loss and signals exact buy and sell trades based on trend lines.