Trend Line trading is one of the simplest method of trading based on technical trend lines. If you are not aware, we would recommend that you first go through our complete reference guide for trend line trading.
While trend line are easy to draw on charts, getting the perfect entry and exit point is a definitive art. Hence, if you want to grab quick and good trading opportunities, then it is always better to trade near trend line. When you trade near the trend line, you can easily maintain tight stop loss. This also means that the risk-to-reward ratio becomes healthy. In order to increase the probability of profitability, combine support or resistance line with trend line and this would give you an ideal entry or exit.
For instance, have a look at below example.
If was looking for an entry point for going long, I would go long at 1.5540 with a strict stoploss of 1% for a gain of around 5% i.e. my first target would be 1.5620 where it reversed last time.
The reason behind going long at 1.5540 are:
- Trend line support.
- Support due to previous consolidation.
- Bullish hammer pattern on candle stick indicating trend reversal.
For maintaining a stoploss, if the trade is going in your direction then always keep trailing the stoploss to a point below the trendling if long and just above trend line if short.
If you want to use trendline for identifying trend reversal, then all you need to do is wait for breakout above or below the trendline. Ideally, one should wait to assure sustainance post breakout. In fact, keeping an eye over volumes of breakout also gives optimum idea if the breakout will sustain or not.
With this, I hope that trendline based trading becomes easier.