Trend line… Of course, you have might heard about this if you are a trader, right?
This tool is a super famous trading tool known for traders from all over the world.
But, actually, most of them misunderstand how to use it.
Today, I’m gonna talk about the real truth how to use it in the right way.
How to draw a trend line in a correct way
First, on the condition,
you cannot draw the trend line until the market makes 2 points.
And use it at a third point just like the above picture. (in the case of an uptrend, you can draw a trend line when the price makes higher high and higher low)
But, if you use a trend line at the third point,
naturally, you will need to pass through the best profitable wave, right? (Elliott Waves)
The wrong way of drawing a trend line is like this
Let me explain by using this picture. this is a bad example you should not follow.
If you draw a trend line like this, you can draw it forever, right? it’s endless…
So, what you have to keep in mind when you draw a trend line is whether the price is exceeding the previous high(or low) price or not.
As far as the price is not over the previous highest price, you cannot draw a trend line too.
The trend line is not effective so much compare to resistance and support level
Let me tell you this, the trend line is actually not effective in the term of determining where the price reverses.
It is too dangerous to shoot your trade just only because there is a trend line there.
If you use lines for spotting reversal points, then I totally recommend you use support level and resistance level.
But if you use the trend line with support and resistance level just like below picture, it will definitely provide a more reliable reversal point, of course.
Use the trend line to decide the best timing to shoot your trade
Then, what is the best way to use a trend line?
Generally, I use it just as a tool to know the “pace of waves”.
“Waiting for the best timing to trade” is a really essential skill if you wanna become successful in the financial market.
So, I recommend you use it just to build up your scenario of trade.
If you can decide like, “I won’t do the trade until the price comes back to this trend line again”, then maybe you can trade with lower pressure on your mind, right?
Don’t think like the trend line is a super trading tool which will tell you where the price reverses with 80%.
The only super trading tool in the market is just “Candlesticks”, I believe.
If you have an ability to read the candlesticks correctly, you are already a successful trader.
No doubt about it.
Anyway, I will tell you guys about this candlesticks analysis at another post someday!
You can look forward to it!