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How to trade with Trend Line

We already learned many technical analysis such as support, resistance, trend line, and also channel, Now, we are going to learn technical analysis to get opportunity in the foreign exchange market with basic technical analysis. Before we continue with our study, remember the basic technique of trend line and channel are support and resistance. When the market foreign exchange moving bearish or downtrend, trend line use as resistance level. In other side, when the market foreign exchange market moving bullish or uptrend, then trend line use as support level.

Basically there are two strategies that we can use to determine support and resistance. The first one we called as "Bounce trading", and the second one is breakout trading.

Bounce trading or we can called as trading reverse

This trading method use reversal movement from the market movement, this usually happens when the market price reach its support and resistance level and then the market price usually reverse or bounce. ON the illustration bellow I can describe you more clear about the reversal movement or bounce price.

The point of this trading system is you must wait reverse movement on resistance or support level to open trading position. The question is why we should not open sell trading position exactly on resistance or support level? because you need kind of confirmation is it going to break the support or resistance level or not. When the market price move too strong then the price can break support or resistance level. So, the reversal movement will be sign that support or resistance level still stronger than the market price. This situation we can discuss more detail on the other topic, and we can learn what kind of confirmation that we can use as guidance when we are going to open a trading position.

Breakout trading system

In the foreign exchange trading, support and resistance are not unbreakable. One time we can see those support and resistance level will break. On that time we can use the other trading system that we called breakout trading strategy. This trading system is different with reversal trading system. If we talk about reverse trading system then we wait reversal momentum of the market price on support or resistance area to open buy or sell trading position. But on the breakout trading system we wait the market price break the support or resistance level and follow the trend. This bellow illustration describe breakout trading system with take opportunity on breakout movement.

Above trading system is the good trading system, where the trading is directly open when trader get the confirmation break or reverse from support and resistance level. Yes, we need confirmation to open a trading position.

We can assume support or resistance level break or reverse when,

1. When we use candlestick chart, wait until the body of candlestick crosses or breaks the support or resistance line.

2, When breakout movement happens, ususally market price in the market increase in volume. The more increase volume, more stronger breakout will be. About this volume trading we can discuss on the other article.

So, that's about breakout trading system. But there are traders who use another confirmation.

If breakout movement already confirmed, I suggest you to not directly open a trading position, but you should wait pullback or reverse movement back to the area support or resistance level. After the market reverse, you can wait another pullback from support and resistance level. After that you can open buy or sell trading position.

Posted in  on 10:01 by herman |   Edit