Types of Trend Lines in Technical Analysis

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One of the main exchange  wisdom  states  that  a tend is a team-mate of trader  but if trend is defined  early  and not  at the end with a view of passage to the new cycle of development. This definition enables to grasp – if a trader can mark a price move and operate with various stages so practically all doors are open before such speculator.

Manual for the table TRENDS

What is this - a tendency or a trend? In order to answer this question it’s necessary to grasp a market specificity alone where prices and quotes are updated every second. However these updates don’t occur unidirectional. Exchanges give pullbacks and corrections occasionally being an integral part of any trend. As a result we can indicate that trend is a move of an asset quotes in pointed direction (upward or downward) where definite direction is prevailed.

For example if a price grew up for 70 % of time period and the price fell for 30% of time we discuss a downward move. All tendencies being within market (regardless of a market type and  an underlying asset) may be divided  into 2 categories: Up trend and  Down trend

Trend development

To define downward move that it is said  that this tendency is characterized with sequence of lower lows and lower peaks.

The classic type is shown in the figure below with pair EUR/USD and in Forex where the tendency downward is clearly found. It is seen in the graph:

  • Green lines – peaks are specified during motion. It is seen that each peak is located beneath the previous one.
  • Blue lines – lows are specified during motion. It is seen that each low is located beneath the previous one.
  • This altogether enable show that a clearly defined tendency downward is observed on specific part of the market on specific underlying asset. Correspondingly rules will be reverse if to discuss upward motion and it’s necessary to look for the motion, where bend points will form not lows but peaks.

Classic definition use

Seemingly we discuss Sunday school truth that cannot possibly help a trader in trading. Partly it is so – it’s really the trends definition in the market is not new one.  It’s possible to create a set of rules and conditions based on this standard definition that is able to have application in binary options trading:

-   You should open positions only in the line of main motion. If there is downtrend in the market you should but options PUT and otherwise – the options CALL.

-  It is necessary to be open on pullbacks forming local bend points (red arrows in the Figure below).

-  If the market is not able to form new bend points that meet conditions it will be possible to suggest of trend completion (black crosses in the Figure below). As a result the new positions are not open and open trades should be bought in advance.

Trends lines in market analysis

Any types of the market trends may be specified in the graph as straight lines. These lines connect lows and peaks successively. Original price channel are formed and binary options trading is performed within this channel.

Such lines form corridors which can be long-term ones. It is possible to find some corridors on some underlying assets that were urgent over a period of several years.  Generally it can be said that above corridors form the trends’ lines: resistance line is an upper one, support line is a bottom line.

The corridors provide following opportunities for trader if discuss the practical application of above tool:

- Purchase PUT for down trend when the price approaches to the resistance line;

- Purchase at options BULL when the price approaches to the support line during correction and for uptrend.

- Breakout of resistance line gives an extra signal for the contract sale during downtrend.

- Resistance for uptrend and support for downtrend are the areas where option is closed in advance.

At once the trend’s lines provide quite good signals for trading, and their importance is very overestimated by traders. There is a mass delusion that lines are static and very hard while practical trading points out that any trend line may and must be corrected according to the price development. This is precisely why the line breakouts result in not to universal change of market trend but it results in simple correction that goes back to main trend fast.

These details permit to show the need that the price has tested ( has broken through) these lines  a few times prior to conclude that the market is oversaturated (underestimated) and it’s necessary to investigate a possibility to purchase options on trend’s change. This necessity is set for valid use trends types in trading as well as trending lines

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