The trendline is the most valuable indicator when it comes to trading, whether you’re focusing on intraday transactions, riding a long trend or just capturing one swing. Just like having automated stock trading systems, the proper use of trendlines can help you succeed in your trading endeavors.
Sadly, most traders get their trendlines incorrectly. Often, they end up confused and unable to enter or exit the market at the most lucrative time.
Don’t be like most traders. Make sure to master the trendlines for your trading success. Below are some practical tips and guides to mastering this trading indicator.
1. Know the basics of drawing trendlines properly
To draw a trendline, you’ll simply need to connect 2 swing points. Preferably, the line should also touch as many swing points as possible in between those 2 points.
For uptrend lines or trendlines sloping upwards, start the line at the lowest point wherein the trend begins. Conversely, use the highest point to start downtrend lines or trendlines sloping downwards.
The following can also be used as the points for trendlines:
- Two open/close prices, or their shadows; or
- The shadow of one candlestick to another
2. Focus on major high/low points
Don’t draw trendlines on every swing point, or else you’ll end up with a chart on your stock trading systems that looks like the cluttered sticks in the game of pick-up sticks or spillikins. It’ll be confusing, overwhelming and counterproductive.
Draw your main trendline on major swing points or the long-term trend. You can also draw short-term trendlines with an opposing trend to your main trendline.
For example, if your main trendline is an uptrend, your short-term trendlines are based on the pullbacks i.e. the short, temporary downtrends when the asset price/value goes back closer to the main trendline. Usually, the intersection of these 2 trendlines alerts traders of having to potentially make crucial trading decisions.
3. Understand that trendlines need constant adjustment
Sometimes, the price/value breaks through your major trendline but quickly recovers and goes back to the original trend. In these cases, you must adjust the angle of your trendline to accommodate the newest high/low point of the recent price action.
Alternatively, you can create two parallel lines to identify areas of trendline support and resistance for uptrends and downtrends, respectively.
4. Don’t ignore the steepness of trendlines
We’ve already discussed how a trendline slopes on an uptrend or a downtrend. In addition, the steepness of the slope also has a significant role in determining the status and movement of the market. For example, a trendline that’s almost horizontal or becoming flatter indicates that the market is in its trading range or moving into it.
On the other hand, a trendline sloping very steeply indicates a potential climax. More specifically, a trendline steeply sloping downwards indicates a possible selling climax, while a trend accelerating upwards indicates a potential buyer climax. When these happen, traders should be wary and must adjust their strategies to accommodate the changing market conditions.
4. Determine the right time to enter/exit the market
Trendlines are versatile tools to use when trading, but it shouldn’t be your sole indicator of when to buy or sell assets. There are several ways to time your trading entry/exit and these generally depend on the market conditions and price actions.
Remember that you need to set your stop loss to avoid the hassle of manually entering the trade. Even when the stock trading systems can send you real-time alerts on lucrative opportunities, the final decision to enter/exit the market is still in your hands.
Basically, setting your entry/exit points closer to your main trendline allows you to set a tighter stop loss and improve your risk-rewards ratio. However, combining other indicators such as the horizontal resistance/support level and reversal candlestick patterns can provide the best trading opportunities.
Timing your buying/selling in the course of a pullback can be tricky because you could lose a lot if you enter the market too early and miss lucrative opportunities if you enter too late. Moreover, you’ll never know when a pullback can reverse.
To boost your success in trading pullbacks, draw a new trendline for the pullbacks using the high peaks in the case of major uptrends then enter the market once the price breaks through the trendline. In the case of a downtrend, use the low swings of the pullbacks to create the new trendline, then exit the market or sell the asset during a breakout.
Other strategies you should learn:
- Setting your stop loss above your downtrend line or below your uptrend line;
- Identifying potentially parabolic trends so that you can exit trades before incurring massive losses; and
- Determining trend reversals after a breakout by keeping an eye on market movements after a new high (uptrend) or low (downtrend) is formed.
In addition, having automated stock trading systems can boost your chances of making your trades at the perfect times. They’re equipped with advanced technologies that track price actions and market trends based on your trading style, and send real-time alerts through SMS or email at the perfect time to exit or enter the market.
5. Upgrade your opportunities with the right trading tools
Take your trading to the next level by boosting your knowledge and upgrading your tools. At Monster Trading Systems, we have a variety of trade-in and upgrade opportunities for you!
These bundle packages will help skyrocket your trading opportunities.
Get in touch with us today to learn more!