There is an expression that travels around traders like a mantra. I am pretty sure you have heard it at least once till now. It goes like this: trade with the trend.
Yes, this is a very good piece of advice. Trading with the trend, and not against, is wise. It maximizes the chances of gaining a profit from the transactions you open. This will be automatic for experienced traders. For those who have just begun, it could create a few problems. First, how to identify the trend. Second, how to recognize the points of the trade entry.
And this is exactly why this guide was written. To answer these questions and help you to trade successfully on the Olymp Trade platform.
Key Takeaways🔑
| →Trading with the trend can potentially increase your chances of successful transactions. |
| →Understanding how to draw and interpret trendlines and support/resistance levels is crucial. |
| →Practice and continuous learning is key to improving your trading skills. |
Contents
How to draw a trendline on the chart
The trendline shows you the trend direction. The inclination of the line demonstrates the dynamic of the trend. The steeper the trendline the faster price is moving.
Once you are logged into your account and your chart is set, click on the indicators feature and then, select a Trend line.
Now you have to determine in which period there is the best trend visible. To do that, zoom the chart in and out. In the majority of cases, a 1 to 3 hours chart with 5-minute interval candles will be sufficient.
If there is an uptrend, you click the lowest price you see, then move the cursor so it touches higher lows. It doesn’t have to reach all of them to have a valid trendline. Two are sufficient.
In the case of a downtrend, you will have to drag the cursor so it touches lower highs. The rest of the procedure remains the same.
How to draw a support/resistance line on the chart
The support and resistance levels are the borders, within which the price consolidation takes place. The bottom line is called support. The price seems not to go below it for a given time. The upper line is resistance. The price is bouncing back and not going beyond.
Eventually, the price will break the support or resistance. And then, the new support and resistance levels will be formed. Often, the previous support becomes new resistance and vice versa.
To draw the support and resistance lines, you have to click the graphical tools feature and choose “Horizontal line”. You simply have to place it on the level, where it will connect at least two lows or highs. You can also use the “Trend line” to draw support/resistance. The difference is that the latter has a limited beginning and end. The horizontal line is infinite in both directions on the chart. It is very probable, that you will soon use both directions.
👍 Pros and 👎 Cons of Trading with Trendlines and Support/Resistance Levels
👍 Pros:
- Helps identify possible market trends and price direction.
- Supports decision-making process in trading.
- Can be used across various trading instruments and timeframes.
👎 Cons:
- May not always accurately predict future price movements.
- Requires practice and experience to use effectively.
- Market volatility can sometimes lead to false signals.
| Key Concepts | Description |
|---|---|
| Trendlines | A tool used to identify and outline market trends, providing visual representation of price direction over a specific period. |
| Support/Resistance Levels | Levels on a chart that indicate price barriers, where the probability of price movement is halted or reversed. |
| Candlestick Patterns | Visual patterns created by price movements on a chart, often used to predict future price trends. |
| Trading Signals | Potential indicators of buying or selling opportunities based on market conditions. |
How to trade using the trendline with the support/resistance at Olymp Trade
We have here a chart for EURUSD currency pair with 5-minute interval candles.
The trendline, the support, and the resistance are already drawn. Let’s zoom the chart a little so we have a better picture of the trading opportunities.
The above chart shows many trading opportunities. Not all of them are perfect and not all of them ended up in profitable transactions. Let’s take a look at them one by one:
- A candle with a very long shadow touching the trend and support line. A very good sign that the price respects the defined lines.
- Tweezers Bottom on the support and trend lines. However, this candle pattern works much better as an isolated top or bottom. Here it is at the heart of the consolidation. Opening a 5-minute up trade after this signal would result in a loss.
- The bullish engulfing pattern on the trend and support line. Previous candles show bulls fighting bears. Entering the position after this pattern appearance would also result in a loss.
- I have outlined 2 bullish candles. The first one has long shadows and a small body, which shows the indecisiveness of the market. Another one clearly defines that bulls are in advantage of the market. Entry after this signal was profitable.
- After breaking through the resistance level, the price goes back. The former resistance level can now be used as a support. Long-legged doji can be a signal for the next up trade.
- We have here 2 bullish pinbars on the support level. After both of them, it was possible to open a position for the price increase. Both ended in profit.
- Classic bullish engulfing pattern located on the support line. The first candle with a narrow corpus shows the undecided market on the support line, the second shows the strength of the bulls and gives a signal to open another profitable position on the following candle.
Remember, you enter the trade at the opening of the candle that follows the signal candle. Each trade you should hold for 5 minutes, which is equal to the period of the candle.
It is your turn now to do some job. Open the Olymp Trade demo account and start practicing today. Tell us in the comments section how you like trading using the trendline with the support/resistance levels. We would be glad to hear from you.
Best wishes!
💡Short Q&A
- What is the significance of trendlines in trading?Trendlines help traders identify the direction of market trends, providing visual representations of price direction over a specific period.
- How do support and resistance levels influence trading decisions?Support and resistance levels indicate price barriers, where the probability of price movement is halted or reversed. They can be used to determine entry and exit points for trades.
- What are candlestick patterns and how can they be used?Candlestick patterns are visual patterns created by price movements on a chart. They can provide insights into market sentiment and potentially predict future price trends.
- What are trading signals?Trading signals are potential indicators of buying or selling opportunities based on market conditions.
- Why is continuous learning and practice important in trading?Trading is a skill that requires a good understanding of market trends, price patterns, and various trading strategies. Continuous learning and practice can help improve your trading skills and decision-making abilities.