Drawing Trend Lines on 2 Forex Pairs: Setups You Don’t Want to Miss

 

Trend lines are an effective tool for measuring market direction and trend and for recognizing minor and major support and resistance levels. That is why Winners Edge started a series on trend lines named “the Number One Handbook on Trend lines in Forex” – click here for part 1. Today’s post will use the information in these articles and apply them to real live charts of various currency pairs.

Please leave a comment down below if you want to add your own analysis to the charts in this post OR if you want to add your own pair to the summary.

CHART 1: GBPCAD DAILY

On the GBPCAD daily chart price broke the contracting triangle trend lines (orange) to the downside (red arrow) but after a recent rally (green arrow) the pair is now consolidating between support and resistance (red and green trend lines). I drew 2 resistance trend lines (reds) and 2 support trend lines (green) because each line has its own value:

  • Darker red and green trend lines have less touches (3) but are neater (less wick outside)
  • Lighter red and green trend lines have more touches (4) but are less neat (more candle out)

16- 10- 2014 TL 1

The angles of the support trend lines (greens) and resistance trend lines (red) are shallow, which indicates a correction – a chart pattern called the contracting wedge. Prior to the correction there was both an up and down impulse (arrows), which means that both long and short breakouts could occur.

Upon the break of a trend line I am always cautious of false break outs and monitor candle stick developments (wicks) to judge the chances of continue or reverse (read more here). If price does break then there is a decent open space available (blue and red circles).

  • For longs the broken triangle trend lines (orange) are the target.
  • For short the bullish armpit is the main target (light green).

CHART 2: EURNZD 4 HOUR

The EURNZD 4-hour chart has a multitude of trend lines. Let us examine them one by one:

  • Purple trend lines are support and resistance lines from the daily chart
  • The orange-red trend lines are resistance:
    • Orange has 5 hits but is less neat as it cuts a candle.
    • Red has 3 hits and is very neat – it’s OK if trend line does not start at the main top or bottom.
    • Dark red has 5 hits and quite neat (only a bit of wick outside)
  • The green-blue trend lines are support:
    • Light green has 4 hits and very neat. It has been broken in the meantime.
    • Dark green has 4 hits and neat (only wick outside. It has an extra value because it’s a long-term trend line that connects multiple bottoms (lots of space between hits). It too has been broken in the meantime.
    • 2x light blue has 3 hits and neat.
    • Dark blue has only 2 hits and is not confirmed.

16- 10- 2014 TL 2

With price respecting the resistance lines but breaking through some of the support lines, the EURNZD seems to be pushing for a bearish breakout. The confirmation of a short trade setup could be upon the break of the light blue support trend lines and bottom of candles (purple circle). Longs do not seem to be likely at the moment – although I will keep an eye on the resistance trend lines for breaks and the support levels for bounces.

In the mean time, there seems to be decent space for a downside trade (red circles):

  • The first target is the dark blue trend line.
  • The second target is the purple trend line.

Don’t forget to add your own charts with trend lines down below.

Thanks for sharing the post and Happy Trading!

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Latest posts by admin (see all)

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news