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Trendlines are of the most valuable tools in any type of technical trading, they will help identify the trend as well as potential areas of support and resistance. There are 2 types of trendlines, the rising- and falling trendline. If you understand how Support and Resistance work then trendlines and channels shouldn't be a problem for you.
Drawing a trendline
For an up trendline to be drawn, connect the low points the currency pair hits as its price continues to rise. For a down trendline to be drawn, connect the high points the currency pair hits as its price continues to fall.
Rising Trendline
A currency trader will try to enter a long trade when prices are near the support trendline with a stop just below in case currency price should break down.
A stop needs to be adjusted every day (if on a daily chart) because the support trendline will rise. Keep your stop up-to-date to lock in profits and to minimize your risk. If on a hourly chart, you need to update your stop every hour.
Falling Trendline
A currency trader will try to enter a short trade when prices are near the resistance trendline with a stop just above in case currency price should break above.
A stop needs to be adjusted every day (if on a daily chart) because the resistance trendline will continue to fall. Keep your stop up-to-date to lock in profits and to minimize your risk. For example, If u use trendlines on a weekly chart, you need to update your stop every week.
Breakout from a Falling Trendline
The above example shows when price is penetrating the falling trendline. If you were short, you will be stopped out. Many currency traders will go long when the currency price is rising above R3. A stop need to be placed below the break out.
Descending Trend Channel
If connecting the currency price bottoms (S1 and S2) of a currency pair (falling trendline1) and connecting the currency price tops (R1, R2, R3 and R4) of a currency pair (falling trendline2), then the Descending Trend Channel is the area between the two lines if both trendlines are falling.
How to trade a Descending Trend Cannel?
A currency trader will try to short when prices are near the resistance trendline (R1, R2,R3 and R4) with a stop just above in case currency price should break above. A limit is set just above the falling support trendline (S1 and S2). Don't forget to keep your stop up-to-date to lock in profits and to minimize your risk.
Ascending Trend Channel
You guessed it, the ascending trend channel is similar to the descending trend channel but prices will now rise. A currency trader will try to go long when prices are near the support trendline with a stop just below in case currency price should break below. A limit is set just below the rising resistance trendline . Don't forget to keep your stop up-to-date to lock in profits and to minimize your risk.
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