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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.
Key Takeaways🔑
| →Trend lines help identify the direction and momentum of a trend for better trading decisions. |
| →Combining trend lines with support and resistance levels increases the accuracy of trade entry points. |
| →Practice using trend lines on a demo account before applying them to real trades. |
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.
Support and resistance ranges are always changing. Once the price breaks out of a support or resistance level, new support and resistance levels are created.
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).
Pros and Cons of Using Trend Lines
Advantages: 😃
- Easy to learn and apply for beginners
- Helps identify the direction and momentum of trends
- Effective when combined with support and resistance levels
- Applicable to various timeframes and asset classes
Disadvantages: 😔
- Subjective, as different traders may draw trend lines differently
- Not always foolproof in predicting price movements
- Requires practice and experience to perfect the technique
- May not work well during periods of high market volatility
Trend Lines and Support/Resistance Levels Comparison
| Trend Lines | Support/Resistance Levels |
|---|---|
| Chart the direction and momentum of a trend | Indicate price levels where consolidation occurs before a trend continues or reverses |
| Can be drawn by connecting higher-lows (uptrend) or lower-highs (downtrend) | Horizontal lines that act as barriers where the price struggles to break through |
| Subjective, as different traders may draw them differently | More objective, as they are based on specific price levels |
| Works best when combined with support and resistance levels | Can be used independently or in conjunction with trend lines |
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.
Good luck!
Q&A on Trend Lines
- Q: Can trend lines be used with other technical indicators?
- A: Yes, trend lines can be combined with other technical indicators like moving averages, RSI, and MACD to improve trading accuracy.
- Q: Are trend lines effective for all types of assets?
- A: Trend lines can be applied to various asset classes, such as stocks, forex, commodities, and cryptocurrencies. However, their effectiveness may vary depending on the market conditions and the asset's characteristics.
- Q: How can I improve the accuracy of my trend lines?
- A: To improve accuracy, practice drawing trend lines on different timeframes and assets. Additionally, use them in conjunction with support and resistance levels or other technical indicators.
- Q: How do I know when to disregard a trend line?
- A: When the price breaks through the trend line significantly and doesn't show signs of returning to it, the trend line may no longer be valid. In such cases, it's essential to reevaluate the trend and possibly redraw the trend line.
- Q: Can trend lines be used for both short-term and long-term trading?
- A: Yes, trend lines can be applied to various timeframes, from short-term intraday charts to long-term weekly or monthly charts. However, their effectiveness may vary depending on the chosen timeframe and the prevailing market conditions.