Trend Line (Trend)

The Trend Line (LT) determines the sharpness of the current trend. It is drawn below the lows in an uptrend and above the peaks in a downtrend. Trend lines are very often used in trading to predict the future behavior of a financial instrument. Identifying the trend in which we are currently in (uptrend or downtrend) allows us to make investment decisions.

 

What is a trend line?

In trading, a trend line is a line connecting successive support points on a chart. Depending on whether these points are getting higher or lower we have an upward or downward trend. Trend lines are one of the most popular and most basic tools of technical analysis.

How to interpret trend lines?

The interpretation of trend lines is the subject of the entire field of technical analysis. Lines drawn on a chart allow you to look for formations that have a specific meaning. In the simplest sense, trend lines will just allow you to discover a downward or upward trend. More complicated formations can be a signal for an upcoming rebound or breakout.

How to draw trend lines?

The simplest trend lines are drawn by connecting support points (bottoms) or price peaks in recent times on the price chart.

How to use trend lines in Forex?

In the Forex market, trend lines are used as one of the most important elements of technical analysis. The formations created by trend lines are important investment information, and the ability to interpret them is important for any trader. Technical analysis is of particular value for short-term traders. The formations created by trend lines are often used in automated trading.

What are the disadvantages of trend lines?

One of the disadvantages of trend lines is the large number of described formations by which technical analysis is not simple. Another disadvantage is the reduced usefulness of using trend lines for long-term investors – such investors are more likely to use fundamental analysis.

What are the advantages of trend lines?

While there are many skeptics as to whether trend lines actually allow for the prediction of future prices, there is no doubt that trend lines are used by many automated trading programs by which they have value if only as a self-fulfilling prophecy.