If you have ever touched forex trading, you would hear about trend lines, support and resistance lines, and so on. These concepts are core, yet many beginners overlook the importance of investing proper time and learning about them early in their trading careers. While they sound complicated in the beginning, these concepts are among the simplest and easiest to learn. Trend lines strip down charts to their essence, enabling traders to spot trend direction. Using trend lines, you can see what the market is doing right now, whether it is climbing, falling, or moving sideways. This makes it much easier to make highly accurate trading decisions. 

So, what are the trend lines in Forex?

Let’s start with Forex: this is an international currency market, where currencies are traded against each other. For example, the EUR/USD pair shows how many dollars you need to buy 1 Euro. When you open a price chart of EUR/USD, you can visually see what it is doing via candles or bars. 

Forex trend lines act as visual guides that help traders spot the market’s real direction and filter out noise. Traders draw trendlines by connecting key price points, usually swing highs and lows, to form a slope that reflects the market’s overall direction. Trendlines act as dynamic support and resistance levels, as they are more flexible and indicate where the price is going. 

An upward trendline (As in the illustration above) shows that the price is making higher lows, meaning there might be an uptrend. A downward trendline that connects lower highs shows the sellers’ dominance or downtrend. 

When trendlines flatten and are not directed in either direction, it usually indicates a consolidation or sideways market. Traders also call these indecisions, and trend traders avoid trading such markets, while swing traders can capitalize on sideways price swings. 

Number 1 beginner mistake!

The tricky part here is that many beginners tend to draw lines that fit their bias about the market rather than the market’s objective truth. This is a mistake. A good trend line follows the market. Once you understand this crucial concept, reading charts becomes much easier and less frustrating. 

Why do trend lines matter? The psychology behind them

Trend lines reflect human behavior. Every market move is a result of traders’ emotions and biases. These biases and the behavior of traders form recognizable patterns on charts. Emotions like fear and greed are an integral part of trader behavior. When prices approach a trend line, traders usually anticipate a reaction; buyers step in near support, and sellers usually appear near resistance. As a result, you should await reactions when the price touches any of those trend lines, especially on higher timeframes like 1-hour and beyond. When the price touches and reverses from a trendline that points upward, traders usually buy. However, if that line fails and price breaks and closes below it, a panic sell might follow as traders await a breakout. 

How do you draw trend lines correctly?

Drawing a trend line is actually a very simple and straightforward process. Here is a 3-step process to make it easier:

Step 1. Identify swing highs and swing lows

These are usually turning points where prices reverse, and we traders call them swing lows and swing highs or just highs and lows. 

Step 2. Connect at least two major points

You need to connect two near swing lows, or two near swing highs, with a straight line, which is included in all modern trading platforms. Both standalone and web trading terminals have this feature. 

Step 3. Extend the line into the future

This projection helps to catch future price action, and when the price touches the line, it should signal that something important is happening on the market. 

Trend lines in trading – Practical applications 

Trend lines are practical trading tools that support entry and exit strategies. In an uptrend, traders often buy near the trend line support and take profits when the price is closer to resistance. However, using trend lines solely as a standalone signal is a mistake. Combining them with indicators like RSI or MACD, or even moving averages, improves accuracy. For example, if the RSI indicates a bullish momentum and the price touches and reverses near the trend line, that is a strong signal. It is important to use strict risk management when using trendlines in your trading and giving your positions a breathing room by placing stops below or above important trend lines.