Technical Analysis

 Beginners / Forex Market Basics / Technical Analysis / Trends


The next step after becoming familiar with the power levels is to become familiar with the trends, or channels. Channels will result from lines parallel to the power levels. At the same time, they try to draw a parallel line so that the vast majority of the time the price is in the drawn range. The direction (slope) of the channel determines the current trend prevailing in the market.

A logical question arises: how to correctly draw trend lines (a force line plus a line parallel to it)? If there is arbitrariness in determining the lines of force, then when it is necessary to add another parallel line, the situation is many times more complicated. Oddly enough, but today among experts in technical analysis there is no consensus on the criteria for constructing trend lines. The thing is that in different markets the trending algorithm can vary significantly. For example, in one case, trend lines should be drawn based on closing levels, in another case, the values of highs and lows, etc. will come in handy. As we can see, there is no definite rule: it all depends on your view of a particular market. However, we note that if you have already decided on your views, then you do not need to change them under the influence of a momentary whim. If, when opening a position, you relied on a power line constructed by closing levels, then you should not change your point of view when leaving the market (if this is not taken into account in your trading system).

It is customary to distinguish three main types of trends:
Up-Trend. If during the considered period of time you can observe a situation in which local price lows (troughs) are located one above the other (in chronological order), then we can talk about the formation of an upward trend.

In this case, you should pay particular attention to the fact that the construction of an uptrend must begin (regardless of your concept of building power levels) from the support line.

Down trend. If in the considered period of time local maxima (peaks) are located one below the other (in chronological order), then we should talk about the formation of a downward trend in the market.

In contrast to the previous case, the construction of trend lines should begin with the determination of the resistance line.

Flat Trend. Quite a common phenomenon for long periods of time. In this case, the price moves in the range between two horizontal power levels.

The more stable this situation in the market is and the less time it takes for the price to go from the upper border to the lower (and vice versa), the more attractive it may seem. What could be simpler: sell at the top, buy at the bottom. However, do not forget that everything once ends.

In conclusion, we note that there are two main ways of trading, based on the concept of the existence of power levels.

Remember that your task is not to buy low and sell high, but to buy high and sell even higher. “Trend is your friend,” says one of the main commandments of traders. Trade the trend and you will succeed.

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