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Traders Agency > How To Apply Trend Lines In An Uptrend
How To Apply Trend Lines In An Uptrend
Applying Trendlines in a Uptrend
The Uptrend & Currency Pair
The first rule of How to Trade Without Knowing How to Trade is to buy low in the buy zone. If a currency pair is at low price and in the buy zone, you will want to buy the currency pair with an entry strategy. So how do you determine if the market is in the buy zone?
In this section, we will discuss how to apply trend lines in an uptrend
for the purpose of finding the buy zone.
An uptrend is when a currency pair is making higher highs and higher lows. A hand drawn trend line is used to connect the low prices together separating the currency pair into two zones: the Buy Zone is everything above the hand drawn trend line and the Sell Zone is everything below the hand drawn trend line.
Below is an illustration:
There are many ways of drawing your hand drawn trend line. In fact, an entire book can be written on the dierent types of hand drawn trend lines. The charting software you decide to use should give you an option to apply hand drawn trend lines to the currency pair of choice. Below are three 3 simple steps to applying your hand drawn trend line in an uptrend.
Step 1:
Identify a currency pair that is making higher highs and higher lows.
Step 2:
Find and mark the lowest price and the highest price of the uptrend.
Step 3:
Place a hand-drawn trend line across the low prices starting from the lowest price and ending with the last low before the highest price. Do not cut through the low prices or connect your hand draw trend line with low prices past the highest price.
Below is a correctly drawn hand-drawn trend line in an uptrend:
See how I find and draw current trend lines in the market and draw them along with me in my Futures War Room. Learn more about the War Room and how it can help you reach your financial goals.
Here is an example of an incorrect hand-drawn trend line.
Using Counter Trend Line Breaks for Entries in an Uptrend
Let’s discuss how to find a potential low price in the buy zone. In a nutshell, whenever you see the currency pair price in the buy zone, in an uptrend, and the currency pair price is moving from a high price towards the uptrend line, you need to think that a future low price will form.
Below is an illustrated example.
When the currency pair price approaches the uptrend line, one of two things typically take place:
1) The currency pair price rises and the bullish trend continues.
2) The currency pair price will close below the uptrend line and the 5
uptrend could end.
When you find a low price in the buy zone, it is always a good idea to use an entry strategy as a reference to guide you on when to buy the currency pair. The entry strategy that you choose should help increase your odds of buying the currency pair when price decides to increase as well as help you stay out of the currency pair incase price breaks the uptrend line and the uptrend ends.
A counter trend line break is one of many different entry strategies that can be used to increase the odds of buying a currency pair when price decides to move from a low price to a future high price.
What is a counter-trend line and how do you apply them?
A counter trend line is exactly what it sounds like. It is a trend line that counters the trend. It is used to track short term movements otherwise known as retracements or pullbacks. When the currency pair price breaks a counter trend line, it usually means the short term move or retracement is over and the extension is about to begin. Traders will use counter trend line breaks to assist them in determining when it’s time to enter into the market on the potential extension.
Below are simple steps to apply a counter trend line and a visual example of a counter trend line break.
Step 1:
Identify that the currency pair price is in the buy zone, the currency pair is in an uptrend, and the currency pair price is moving from a high price towards the uptrend line.
Step 2:
Place a new hand-drawn trend line across the short term move other- wise known as the pullback or retracement.
Step 3:
Wait for the currency pair price to close above the counter trend line. This is known as a counter trend line break.
If the bullish trend continues, the currency pair price should rise and the currency pair should form a future high price higher than the last high price giving the trader who bought the counter trend line break the opportunity to close their buy position with a profit.
In the next section, we will discuss using a protective stop-loss order to exit the buy position with a predetermined loss. A protective
stop-loss order is a must-have for every trade. You should never enter into a trade without having an exit plan for a loss. If your trade goes against you, you will want to have the loss predetermined and part of the trade plan otherwise…you could potentially lose your entire trading account from one trade continuously going against you.
What is a Protective Stop Loss?
There are a million ways to make money in the Forex market, but there is one way to lose it all and that is trading without a protective stop-loss order. In your Forex Broker, you will have the ability to choose a price point that will automatically close your buy position with a loss. This will give you all the control over how much you are willing to lose in a trade.
For example: Let’s say you are looking at a currency pair and the currency pair is in an uptrend, in the buy zone, at a low price, and the currency pair price just closed above a counter trend line bullish. You decide to enter into the currency pair buying
In this example, we will place the stop just below the last low. If you think about an uptrend, most bullish trends end if the market breaks the uptrend line and takes out the last low.
So for me, it is only logical to place the protective stop-loss order just below the last low price. This will help with staying out of the way of the wave. If you place your stop-loss order above and not below the last low price, then the currency pair price may fall and hit your stop, causing your buy position to close with a loss, form a low price higher than the last low price, extend bullish, and continue with the
bullish trend.
If this happens to you, your stop is in the way of the wave. To increase the odds of staying out of the way of the wave, I like to place the stop below the last low price in an uptrend.
What is a Limit Order?
A limit order is an automatic exit for profit. Your Broker will give you the ability to choose a price point that will automatically close your position with a profit. This will give you all the control over how much you are willing to make in a trade.
There are many different exit strategies that can help you determine the best place to exit with a profit. I encourage you to continue your education and discover what exit strategy best fits your personality. In this example, I am using a basic set of rules for finding and placing a limit. The limit will at least equal the risk amount.
Continue your education with me in my Futures War Room. In each live session, I go into the stock market and identify entry and exit points that could make you massive returns. Learn more about my Futures War Room here.
Remember, it is important to profit at least the same amount you are willing to lose in a trade. In the long run, there is a larger financial upside if your reward is larger than your risk.
The trend is your friend
The old saying “The trend is your friend until it bends” has everything to do with the currency pair price staying in its current zone. A trader should strategically focus on buying low prices in the buy zone. If the currency pair price closes below the hand-drawn trend line, then a trader should expect a potential trend reversal and a new downtrend to present itself.
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