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Welcome To Forex TrendLine Strategy course

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by

Gert van der Merwe

on 2 November 2016

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Transcript of Welcome To Forex TrendLine Strategy course

The difference between the various types of conventional trend lines lies in the number of candle sticks or periods that line passes through
Once you have identified all the medium and big swing highs or lows, you can start to plot your trend line
What Are Trend Lines?
Step 3
Connect at least 3 swing highs or lows to form your long term trend line
Welcome Fellow Trader
Thank you for joining
Welcome To Section 1:
Trend Line Analysis
In this Section you will learn
How To Draw Conventional Trend Lines
Rules For Drawing Conventional Trend Lines
Types Of Conventional Trend Line
How To Draw Tom Denmark Trend Lines
How To Determine The Strength Of Your Trend line
How To Verify a Valid Trend Line Break
How To Do Proper Price Projection
A Trend Line indicates the general course or tendency of something that is Trending
In Trading, a Trend Line represents the supply and demand among the buyer and sellers of a currency pair, commodity or future contract
Examples
You get Resistance Trend Lines and a Support Trend lines
A support trend (Demand) Line is drawn by connecting several swing lows
A Resistance Trend (Supply) Line is drawn by connecting several swing Highs
Swinging Lows and Highs
Swing High is basically an upside downV-Shaped formation with several candles on the left and right side of a single high candle
Swing Low is basically an V-Shaped formation with several candles on the left and right side of a single Low candle
However we are not interested in all swing highs and lows when drawing a trend line
we are looking for swings that have more weight as this will produce trend lines that is more significant
Examples of swing weight
In this example their is less selling power and the move downwards is minor.

Note the candles sticks and their bodies, This it indicates indecision but for the moment the buyers(bulls) are still in charge
The medium swing has a deeper pull back (selling power) than the weak swing and as you can see in this example price pulled down but more buyer(bulls) entered pushing price higher.
As you can see in this example price was bearish for a while until a point where the sentiment changed and enormous amount of bulls entered the market moving price much higher making this swing more significant
There are 2 types of trend lines you can draw and we will be going through all of them in this course
The Tom Demark Trend Line

You get:
The Conventional Trend Line
And
You need a good knowledge of how to draw both trend lines as you will need to combine them to have a better trading experience !!
The Conventional Trend Line
Also called the common sense trend line.
The conventional trend line consists mainly of 3 types of lines
The Long term Trend Line
(BLACK)
The Long Term Trend Line is drawn over a longer period of time.
Due to the higher weightage of each swing high or low, the long term trend line will usually have more power than the medium and short term trend line
This means that price will most probably bounce off the long term trend line for the first few times before it can break through it
Medium Trend Line
(BLUE)
The Medium Trend Line is simply part of the long term trend line
From the last point of contact of the long term trend line with price you can draw a medium trend line
As compared with the long term trend line, the medium trend line passes through lesser candles and thus has lesser weightage
Short Term Trend Line
(RED)
The Short Term Trend Line is the most recent trend line and you will be using it to trade most of the time
Some of you may think that the long term trend line must be drawn from a higher time frame and short term trend line is drawn from a lower time frame.
In fact, all the long to short term trend lines are drawn on the time frame
For the long term trend line, it has to be drawn over a longer period of time and passes through more periods
For Short term trend line is usually drawn over a shorter period of time
As for the period to draw, there is no specific guideline you should follow
Rules for conventional Trend Line
The Best Trend Line is One That Connects The Most Swing Highs Or Lows
Once The Support Trend Line Is Broken, It Will Turn Into Resistance Trend Line
Once The Resistance Trend Line Is Broken, It Will Turn Into Support Trend Line
Steps To Drawing Your 3 Types of
Conventional Trend Line
Step 1
Shrink your selected time frame to a smaller size until you see the start of you current trend
If the currency pair you are trading is currently in an up trend, you simply have to shrink your chart until you can see the beginning of the up trend
Example:
EUR/JPY 1 hour
Step 2
If you are in a down trend, look for major swing highs and if you are in an up trend, you should look at the major swinging lows
To draw a strong trend line, you need to have at least 3 points of contact which means that you need at least 3 swing highs or lows
Example:
EUR/JPY 1 hour
Step 4
Expand your selected time frame and look for the latest major swing high or low
Step 5
Connect the swing high or low that you have identified in step 4 with the last contact on your long term Trend line and you will get your medium term trend line (in Blue)
Step 6
Look at your recent price action from where the price last touched your medium trend line and from here on you will draw your short term Tend Line or T.D Line
The Tom Demark Trend Line
The Tom Demark Trend line or T.D line as it is also known was founded by a professional trader called Tom Demark. He wrote a book called the new science of technical analysis. Google him
While communicating to a trading friend over the telephone about a trading he realized that every time when they started talking about the trend line it was difficult to talk about the same trend line since the conventional trend line is very subjective
Every trader can draw different conventional trend lines because everyone of us sees things in a different way
After doing a deep study on this subject with the goal to find a way to draw a trend line that doesn't depend on the individuals point of view he found the T.D trend line.
The T.D line is a very dynamic trend line as it will change with the market movement
The TD line gives the trader the most recent line to trade with.
T.D Trend Line
Conventional Trend Line
Subjected to a traders point of view
Is a systematic trend line
Is a common sense Trend Line and it gives you a general idea of the direction, UP or DOWN
Based on a non judgement approach
Works with the most recent price action. The supply and demand of the market
Steps to Drawing your TD Trend Line:
Step 1:
Pick the 2 most recent swing highs or lows
Please note that for the TD line the swing highs and lows does not need to be major. It is simply the recent swing highs and lows
Step 2:
Connect the TD points and you will have a TD Line
To identify a TD Point look at your swing lows and highs. There should be no less than two candles on each side of the main high/low candle. This is a true high/low
As new candles are formed the TD Line will change and you have to constantly follow up to get the best results
Some Examples of a TD Trend Line
New Swing Low
It is now time to combine the TD line with the Conventional trend line to get better results
The TD Line will only be used for the short term trend line
We will use the Conventional way of drawing a trend line for the long and medium Terms
But First
Note the following
The TD line will constantly change as new swing highs or lows are being formed
The redrawing of the Short Term(TD) Line gives you the best and most recent trend line to trade with
How to Determine The Strength of Your Trend Lines
Knowing how strong the trend line is that you draw can be beneficial to your trading.
Why?
There is a higher chance that the market will respect the trend line that is strong and get repelled by it when it touches the line
Drawing Trend Lines that are insignificant is equivalent to not drawing any trend line. You will find that price does not usually respect these levels and therefore it cannot be used to help you in your trading.
The number of times the trend line has been touched = the strength of the trend line
The more the trend line has been tested by the price, the stronger the line is and the more likely it will be able to hold!
Example
The line has been touched by price numerous times and the more touches the stronger the line
The strong trend lines are usually used as exit or entry positions
Be careful to enter a trade when a strong Trend Line is broken, fake outs are very common in trading
Fake outs
A fake out is when price breaks out of the Trend Line making you think that the breakout has occurred
A few candle later, the price reverses and hits your stop loss.
How to Confirm a Trend Line Break
The best way you can validate a breakout of a trend line is through the use of the MACD indicator
What is the MACD?
The MACD stands for Moving Average Convergence Divergence
The MACD indicator consist of a MACD line (
BLUE
)
A Trigger line (
RED
)
And the histogram that shows the difference between the 2 lines (
GREEN
)
Is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals
For the confirmation of a trend line break, you simply have to use the default MACD settings in you trading platform
To validate a breakout, you must make use of the histogram of this indicator
When you see price breaking a trend line you must check your MACD Indicator to see if the histogram flips to the side of the breakout
If it did not flip, after a Trend Line break, Then this is usually an indication that the breakout is a fake out and you should refrain from entering a trade
If the breakout is validated by a MACD flip to the same side as the break out, you can take it as an entry signal for a Trade
Do not rush into a trade when you see the histogram flips, always wait for the second bar to be formed on the MACD before confirming the flip over
There are times when the histogram my flip to the other side but eventually flip back, invalidating your breakout and you should take caution
Example of Validated Breakout
Price retests TD Line
Price moves up
Breakout confirmed by MACD Histogram Flip
Price retests TD Line
Breakout confirmed by MACD Histogram Flip
Price moves Down
Example of Fake out Captured by MACD
Price breaks TD line
No flip in MACD Histogram
Price Moves Back Above Trend Line
would have been stopped out
Not that Histogram did not flip
You can also apply this technique to triangle breakout or any other breakout strategy
Fake out is something that is very common in trading and you must definitely try to minimize your losses due to it
Although this method is able to help you minimize your losses due to fake outs it is not possible to be 100% accurate all of the time
There is nothing 100% about trading and you simply have to accept losses as past of the game
How to Do Proper Price Projection
Now that you know to draw conventional trend line and Tom Demark trend line, you are now able to plan your entry using the trend line.
However a trading plan is never complete without a properly planned exit strategy, you can have the best entry technique but you will continue to struggle in your trading if you do not know when the best time to exit your strategy is.
The main reason why most traders are losing despite them having a good strategy is because of their lousy exit plan.
This is a section most traders tend to neglect and this is what we are going to talk about in this section of this course
The beauty of trend lines are that it allows you to do some price projection which can help you to know when you should exit your position
There are a total of 2 price projection techniques that I will go through here so that you can make full use of all of them to perfect your trading plan.
First of all, let us go through the price projection technique that I always use for trend line break trading
Here are the steps
Step 1:
Draw a TD Trend Line
Step 2:
For an upside breakout
For a downwards breakout
You should project a vertical line from top of the highest candle within the trend to the trend line
You should project a vertical line from the bottom of the lowest candle within the trend line to the trend line
Step 3:
From the point of breakout, place the line you have projected on Step 2 to see the projected movement of the price
Examples
Example of GBP/USD 15min Chart
Step 1:
Draw a TD Trend Line
Step 2:
Project a vertical line from the bottom of the lowest low candle within the trend line to the trend line
Step 3:
From the point of breakout, place the line you have projected on step 2 to see the projected movement of the price
Projected Price Target
Validated By MACD Histogram Flip
See how the price moves to the target projection and reverses
This is the more conservative method of price projection.
This concludes and Strategy
Can be used as support/resistance levels and for targets
Some notes to note
Full transcript