A Trendline Trading Strategy Explained for Beginners

Like any other trading technique, the trendline trading strategy can be very helpful for both beginners and pros when implemented properly. It has proved to be a handy tool for those who want to dive deep into technical analysis and trading charts to have a broader market overview. If you fail to use the strategy correctly, trend lines will have no sense. What’s more, their use will be counterproductive.

When used effectively, trend lines may help traders to identify the price reversal or trend strengthening. Incorrect implementation of the technique will result in misbeliefs regarding the price action, which may lead to serious losses. To avoid failures and make the most of the forex trading trend line strategy, we have prepared some useful tips.

Trendline Trading Strategy Basics

The main idea behind using the trend line is to spot the sideways movement of a trend/range. The line is to connect the swing high and low. Every time the price goes up, the line will rise accordingly making it simple for traders to understand whether they should wait for a reversal or trend strengthening.

If the price goes down, the wing high goes down as well. In this case, traders will use the trend line to observe the downward trend or price movement.

Tips to Use the Trendline Trading Strategy

As you can see, the strategy itself is pretty simple. However, to get started, you will need to consider several crucial issues:

1. Multiple Trendlines – using a single trend line is hardly a good solution. As a rule, traders use several lines to draw as many of them at a given moment as they can. As a result, they may benefit from a broad overview of the price making moves at different periods simultaneously. You also need to remember that some of the trend lines will have a short lifespan. This is due to the price's inability to sustain in a rise for long. In other words, traders may draw the trend lines whenever they want and put as many of them as they need not only to spot the overall trend but also smaller trends that may affect the major one in the long run.
2. Adjusting Trendlines – after you have drawn the line, you will need to adjust it to the trading chart. The key challenge here is that lines move along with the time and price axis, as they account for price and time. In other words, you will need to adjust them every time the trend accelerates or decelerates. What’s more, you are not supposed to rely only on the trend line as a stand-alone tool. Traders will need to decide where to adjust the line depending on the way the price is moving within a specific trend. When the trend is in the upward position, the price usually reaches higher lows or highs. When it breaks through the prior line, it does not really mean the end of the trend. You may need to adjust another line.

Traders should always stay focused on the trend movement to spot the best moment when the line breaks down or when it is time to draw and adjust a new one.

How to Trade with a Trendline Strategy

It becomes clear that the strategy relies on regular line drawings and adjustments, where it can work as a signal. Traders should note that when they draw a line at a different angle, it could change the entire overview of the price the line intersects.

The main idea of using the concept is not about drawing all the time. It is about defining the most favorable tie and criteria to enter the market with a trade. Traders will see when they need to move back with a trend or adjust a new indicator to define the increased volatility.

Some traders do not consider trend lines as a signal. At some point, they are right. On the other hand, it makes it possible to generate relevant data and information about the price action and the trend.

The Bottom Line

The trendline trading strategy might work as a great tool for traders who want to follow smaller trends as a part of the major overall trend. You always need to keep the focus on the price action and be ready to adjust a new line. You need to be prepared to adjust new lines pretty often, especially if you mainly follow the day-trading style. Besides, the tactics will help you spot potentially profitable trading opportunities and can be used as price action signals. 

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.