Today we will tell you how to use trend lines. This is one of the most powerful tools to help identify a trend. Trade with the trend – that's an age-old mantra that professional traders live by. If you trade with the trend, you're increasing the odds that your trades will be profitable.
But this is easier said than done. First, you'll need to identify the trend. Then, you'll need to identify the best trade entry points. Pro traders can easily do this without the need for indicators or other special tools. However, for beginner traders, it can be challenging.
That's why I've created this short guide. In it, you'll learn how to draw a trend line, support and resistance, and how to use them to trade on the IQ Option platform. Let's get started.
How to use trend lines?
What is a trend line?
Trend lines are used to chart the direction of a trend. The steepness of the trend line can help you have an idea about the trend's momentum. Steeper trend lines indicate that the price is moving fast in a certain direction. An uptrend line is a line that connects successive rising bottoms in an uptrend. A downtrend line connects descending peaks in a downtrend.
How do you draw trend lines?
There is no trend line indicator which automatically draws the line for you. Instead, you will find graphical tools with which you can draw the lines on the graph yourself. To set up this tool, start by clicking on the graphical tools feature on your IQ Option trading interface. Next, select either line or trend line.
Next, zoom your chart in and out to identify which time period shows the best trend. In most cases, a 1 hour to 3 hour chart with 5 minute candles will do.
Next, click on the lowest price and drag your cursor to touch all higher – lows with a straight line if it's an uptrend. Note that the trend line doesn't have to touch all higher – lows. It just needs to connect at least 2 higher – low points to chart the trend. If it's a downtrend, your trend line should connect lower – highs.
The chart below shows a trend line drawn along an uptrend.
However, how to draw and how to use trend lines are 2 separate subjects. So let us come to the point.
How to use trend lines along with support and resistance on IQ Option
Now that you know how to use trend lines, your next step involves adding support and resistance levels. These are simply price ranges where retracement and consolidation occur. The resistance is the upper line along with an uptrend where prices tend to reach before bouncing back. It's the lower ling in the case of a downtrend. Support is the lower line along with the uptrend where prices don't seem to fall below for a given period. It's the upper line in the case of a downtrend.
Now let's look at an example.
Using the chart below, the Lower most horizontal line is the support (for the uptrend). It eventually becomes the resistance when the downtrend starts developing.
The middle horizontal line forms a strong resistance along the uptrend. Notice how many times the price hits this level and bounces back down before breaking out to continue the uptrend?
The uppermost line forms the resistance for the uptrend.
Next, we'll look at how to enter trade positions based on these three lines.
How do you read a trend line?
The trend line and support intersect at a price point which touches a bullish pin bar. This is a signal to enter a buy position. Your trade entry should be at the opening of the next bullish candle (1).
The next trade entry is also signalled by a bullish pin bar. The only difference is that its low touches the support and the trend line touches its open. Since it's a bullish pin bar, your trade entry should be at the opening of the next candle (2).
The final trade entry point is also signalled by a bullish pin bar. What sets it apart from the others is that its low falls within the zone where the trend line intersects with very strong resistance. Being a bullish pin bar, you should enter a buy position at the opening of the next bullish candle (3).
In case you're wondering how long the trades should last, each position should last 5 minutes (one candle interval).
What are the three steps in using trend lines?
Today we have shown a simple method on how to use trend lines. It comes down to 3 steps. First, you draw a trend line, if one can be drawn. Second, you add local support and resistance levels to the chart. With everything on the chart you can then identify where to open a position. Ideally, these positions should be confirmed by the trendline and support or resistance at the same time. You can use the occurrence of a candlestick pattern as a trigger to open a trade.
Now that you've learned how to use trend lines alongside support/resistance, this can be your best trend lines trading strategy. I urge you to try out this strategy on your IQ Option practice account. We'd love to hear about your results in the comments section.
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