This article in The Trader’s Indicator Series discusses trend lines and channels, which is an integral component of the trader’s toolbox and crucial for manual trading. The previous article discussed moving averages, one of the key trend indicators, albeit lagging.
In the last series, called The Trader’s Pendulum, we took you through the 10 Habits, all aimed to support a successful trader. Your mission in developing these habits is to get out of the Technical Trader’s Trap and transform into an Entrepreneurial Trader so that you can start being accountable to your trading. We invited you to take action and begin your journey by completing the Trader’s Scorecard (www.fxtradersedge.com/scorecard) and to get down to business by arranging a free coaching session. In this Indicator Series, we will talk about the mechanics of trading.
Trend Lines and Channels
There are other tools that traders can use to stick with the trend such as trend lines and channels.
What is a trend line? A trend line is a straight diagonal line that connects the extremes in price movement. It can be an upward- or a downward-sloping line, depending on the trend move.
In a downtrend, successive lower highs are connected. This is called a downtrend line. To draw a downtrend line, first identify two lower highs. Next, draw a trend line, starting from left to right, to connect the lower highs. Two well-defined touch points, or where the candles touch the trend line, are usually a good indication that the trend will continue in that direction. But identifying three lower highs confirms it.
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