Short Term, Intermediate Term And Long Term Trendlines
Prices trend. Trendlines are drawn by connecting two or more points of support and resistance. An uptrend means a series of price bars or candles exhibiting higher lows, higher highs or higher closes. Similarly, a downtrend means a series of price bars or candles showing lower highs, lowers lows or lower closes.
An uptrendline is also known as the support. It is drawn by connecting the higher lows with a straight line and extending that to the right. In the same manner, a downtrend line also known as resistance is drawn by connecting the lower highs with a straight line and extending that to the right.
What you need to understand is that trend lines are very important for a trader. They visually depict the support and resistance in the market. Trend lines need to be updated with time as the market keeps on changing it's direction.
Now, what you need to understand is that there are long term trendlines, intermediate term trendlines or medium term trend line and short term trend lines. You will need to constantly update these three trend lines.
Trend lines are very useful for pointing out direction. Having a trendline in place on the chart can be a good reminder of the market's current direction. The more steeper the angle between the main trend line and price becomes, the more likely it becomes that the price action will revert back towards the trend line. This slope acts as a rubber band that tends to snap back. This is the basis for the market corrections.
When the market makes a correction, a counter trend rally starts.
These counter trend moves are represented by the short term trendlines.
As a trader, you need to respect these trend lines. When you see the angle between the short term trend line and the price action increasing, exit half of your position. Always remember prices tend to revert back to the long term trendline.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.
by: Ahmad Hassam
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Word Count: 338
Date: Tue, 14 Dec 2010
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