A Trend Line in Forex
In simple terms, a trend line is a sloping line signifying the point at which prices have difficulty moving above (bullish) or dropping below (bearish). The trend line is similar to the support and resistance lines used by traders, but instead of being drawn horizontally, it is expressed at an angle. The tool is used in technical analysis in much the same way as the support and resistance tools. Also like support and resistance, forex traders tend to be more successful when they react to the most obvious trend lines. As the name suggests, there is always a trend and the longer the time frame, the greater their reliability.
When sketching a trend line the forex trader will need to work out how frequently a price touches it. The more often the line is tested, the stronger the trend. This enables the forex trader to develop an idea as to how attentive buyers are when the price nears the line. They will nearly always wait for a minimum of three touches before they trust its integrity.
Even when a trend is proving reliable, there may still be occasions when the price may temporarily pierce the line. It is very much a matter for individual judgement or point of view as to whether or not the trend can be considered invalidated by such a move. Generally however, if the candle has closed higher than an uptrend line or lower than a downtrend line, the very occasional pierce in the line may be acceptable. Some forex traders will go so far as to interpret this as a sign of strength, especially if the line continues to be consistent in the longer term.
Channels in Forex
Channels can be said to be a further example of ‘vertical support and resistance’. Again, channels are similar to the trend line, however, there is not one, but two lines drawn parallel to each other. As a result, both support and resistance will be present at the same time. The top line acts as the resistance while the bottom is the support. As is the case with trend lines, these become more reliable over time. Forex traders often view channels as instruments of market range. Some will repeatedly buy and sell as the price fluctuates between the lines. Eventually however, the channel may be breached and the price will move in a more erratic fashion.