Making 50 pips a day in the forex market seems impossible, but with the practice and proper risk management, you can make the impossible and make money trading FOREX
In forex trading, understanding the entirety of a particular strategy and utilizing it in your trades is a way forward to success.
Most traders prefer to trade daily, taking advantage of a small movement in price action; this type of trading strategy is referred to as “Day trading strategy”.
Traders who practice day trading strategy examine the market at the beginning of the day to get various positions set out; they monitor these positions till the day ends.
to become an expert day trader, you must do the following:
- Integrate the right strategy and plan
- Have a Risk management plan
- Backtest and access your strategy
- Create enough time to explore the market repeatedly.
There are various day trading strategies utilized by traders which include: trendline strategy, countertrend strategy, range trading, breakout trading, and many more.
Knowing the basis of these strategies would make you stand out in the forex market. In this article, we will deal mainly with trading trendlines.
Trendline trading strategy
Trendline trading is one of the useful, accessible, and straightforward strategy that traders utilize in the forex market.
Trendline trading does not require a lot of time and effort to sort out; it ensures that traders maximize the movement of price action at the same time, keeping their charts free from muddled indicators.
In trading trendline, there is some simple and widely used concept you should take note of which includes: uptrend, downtrend, support, and resistance level.
The terms mentioned above are frequently used in trading the forex market through technical analysis.
Knowing these terms would help you understand the basics of trendline trading, as trendlines are formed by the continuous breaking and retesting of support and resistant level.
Support and Resistance
In forex market support and resistance level is a certain predetermined level that has occurred in the past and tends recurring again in future trades.
This concept is highly discussed in technical analysis, and hardly would you see a particular day trading strategy without support and resistance as part of its concept.
A support level is an area where a downtrend or a bearish movement is expected to halt due to the high concentration of buyers wanting to go long in that particular area.
A support level arises when a trade moving downward reaches an area and move in the opposite direction.
It indicates the level that is likely to have a buying pressure (different traders are looking at this level to go long).
A resistance level is an area where a moving uptrend or a bullish trend is expected to halt due to a high concentration of traders looking to go short (sell) in that particular area.
Whenever a price action gets to either of these levels or areas, it is expected that a movement in the opposite direction occurs.
From the diagram above, when the price moved up, it got to the highest point and moved backward.
The highest point reached is referred to as RESISTANCE.
when price moved downwards it came to the lowest end and pulled back upwards,
The lowest point reached is referred to as SUPPORT;
However, take note, the particular setup displayed in the image above is not the only way resistance and support operates. It can also be displayed in a trending market.
Uptrend and Downtrend
A trending market can either move upwards or downwards. When price action is going up, we refer to that kind of market formation as an uptrend.
when it comes down, it is regarded as a downtrend.
This concept is used in dealing with a trending market and also useful for drawing effective trendlines.
There is also a term called a sideway trend, unlike uptrend and downtrend it moves from side to side, it can also be called consolidation or range.
The diagram has clearly explained itself; a trend contains high and low, which is also divided into higher high, higher low, lower high, lower low.
The highs and lows are resistance and support levels formed in a trend.
In an uptrend as the trend continues to move the swing high and low increases upwards, whereas in a downtrend as the trend continues to move the swing high and low decreases downwards.
Also, take note; it is not in every situation you see a trending market displayed as shown in the diagram above.
You need a minimum of two significant lower high to draw a downward trendline and a minimum of two significant higher low to draw an upward trendline.
In some situations, there can be a combination of two trendlines in a trending market,
We should have it in mind that the trendlines that have the most amount of touches with the swing lows or highs will be more preferred.
To understand the trendline strategy critically, you must have initially digested the entire concept mentioned above. If you already understood the above concept, congratulation, you are on the verge of accomplishing colossal success.
3 COMMON MISTAKES IN DRAWING TRENDLINES
- Drawing trendlines through an obstruction.
- Drawing through the wicks and body of candlesticks.
- Drawing trendlines that are not touching highs or lows.
How to trade with trendlines
There are different ways to trade trendlines; they can be traded as a breakout or retracement. You would have noticed that two things occur when price action reaches a trendline:
- It bounces to the opposite direction obeying the trendline
- It breaks the trendline (Trendline Breakout)
Whenever this situation occurs, massive trading opportunities are recorded; this is because, at this point, most traders are looking to either go long or short depending on the type of trending market.
The above diagram is an example of a moving uptrend, and it can also be referred to as a bullish trend.
Consequently, from the picture, we notice that this particular price action met with the trendline about five times, after that, it made a fakeout.
As I mentioned earlier, before you take this kind of trade you must be sure that your trendline meets at least two prominent higher swing lows for an uptrend.
This condition was achieved in the diagram above.
On the third to the fifth touch is a potential point to enter a long trade. However, this is not an important reason to enter a trade.
There are other factors you must look out for whenever price action retraces back to the trendline.
These factors depend on the following:
- Presence of a broken support/resistance level
- Candlestick pattern
From the above diagram, a resistance level was broken, after that, there was a little move upwards, a pullback, and at last, price came back to the same resistance level that was broken to form an area of support.
This is a confirmation that there is a possibility that price would go long after it retraces back to the upward trendline; that is what exactly happened in this trade.
We could notice the massive bullish movement after the retracement in the diagram.
There are various candlesticks pattern forex trader uses to validate price action or movement, the most widely occurring being the
- Morning star,
- Shooting star,
- Engulfing, and
These patterns are useful in trading trendlines.
There are times when price actions tend to move against the trend; at this point, a breakout occurs.
You should understand that whenever a trend is broken, there are some specific things to look out for which revolves around the concept of BCR (Break Continuation Retest).
There are three ways forex traders trade trendline breakout.
In the diagram above the market was on an uptrend, but on the fourth touch with the trendline something happened; price moved downwards and broke through the moving uptrend.
As you can see, after the break it moved for a little bit, pulled back, and retested the trend.
Traders in this context will be looking to go short after price retested the uptrend.
There are times when the market tends to respect broken resistance/support level.
Unlike the previous diagram, price action didn’t retest the uptrend after breakout;
it recognized the support level, breaks through it and retested the key level.
This is an excellent opportunity for day traders to utilize the change in trendline to gain massively; this movement alone can amount to 100 pip profit.
The formation of a counter-trend can also characterize a trend breakout; in the diagram above a downtrend aroused without retesting the initial uptrend.
As mentioned earlier, to draw a downward trendline at least, two lower swing highs must have been formed.
On the third touch with the downward trend day, traders are looking to go short.
Another critical point to note is deciding when to exit the market. Most beginners’ plays with this a lot; their feelings and emotions make them exit trades early, reducing the profit they make.
There are different methods you can use to determine when to exit the market; some traders use emerging key levels, indicators, and trailing stop losses.
The most effective way of choosing your exit point is by tracing prominent lines of support and resistance that has previously been formed within price movement and placing your stop target below it.
Trades are not just taken; you have to check out for different concepts that could ascertain that the trades you are about to make would move in your favor.
TO BE SUCCESSFUL IN FOREX, YOU HAVE STICK TO ONE STRATEGY, AND BEFORE STICKING TO THAT STRATEGY, YOU MUST HAVE TESTED AND EVALUATED IT COUNTLESS TIMES.
Day trading is beneficial, and you can make a profit in a short period, but that only depends on how effective your strategies are.