In today’s lesson, we are going to learn how a trend line is established and how to choose the chart to trigger entry as far as trend line trading is concerned. Traders at the beginning often are carried away and select a wrong chart to trade with a trend line. The point is, we must choose the right time frame to make the best use of a trend line. Let us now find out how we can do that.
It is a daily chart. The chart shows that the price after making a bullish correction heads towards the South and makes new lower lows. We see four significant swing highs from where the price makes four swing low. If you are a trendline trader, you know from where you have to keep an eye on this chart, don’t you? Then again, let us explore it.
The price produces a spinning top followed by a bearish engulfing candle. It makes a bullish correction and finds its resistance at point B. The price makes a breakout at the last swing low and heads towards the South further. By joining two swing highs, we can draw a down-trending trend line.
The chart shows that the price is down-trending by obeying the drawn trend line with the first two points. Concentrate on the point C. This is where traders keep their eyes to get a bearish reversal candle to go short in the pair. The chart shows that the price produces an inverted hammer. The trend line sellers may go short below the last candle’s lowest low.
As expected, the price heads towards the South with good bearish momentum. The chart produces two consecutive bearish candles. Moreover, the chart makes a new lower low as well. This means the game is not over yet for the trend line sellers. They may wait to go short again from the resistance of the trendline upon getting a bearish reversal candle.
The chart produces a bearish inside bar. The sellers may go short again below the last candle’s lowest low. It seems that the sellers are having a feast here. This is the beauty of trend line trading.
The sellers again make a handful of pips. In fact, the price makes a breakout again at the last swing low. They may wait for the price to go towards the trendline and produce a bearish reversal candle at point E to go short again. Now, let’s flip over to the H4 chart and find out how it looks.
The chart shows that the price is down trending. However, it is tough to find out the signal candle. We get more than one bearish reversal candle at point B and C. At point D, it is extremely confusing were to trigger an entry. With the Daily chart, it is very explicit, though. To be able to choose the right chart that obeys a trend line, we may always concentrate on point B (2nd point) and calculate with which chart it responds more. We then keep our eyes on that particular chart to be able to take entry with precision.