The newcomers in Forex trading often find difficulties in using the right Forex trading tools to facilitate their trading. Though, the idea of an ideal Forex trading tool is almost like an illusion, you can get success using a combination of tools. The combination of tools can identify a convergence of favorable market factors, which can yield a huge profit for you. The Three Trendline Strategy is one such tool.
The trendlines are actually lines drawn across significant lows in an up trend Forex market and significant highs in a downtrend market. They can be a useful addition to your strategy, as they provide confirmation of signals from other tools. We will discuss about the three trendlines strategy in this article to make you understand it better.
Short Term Trendlines: These lines are drawn across the most recent two lows or highs in the market. These lines are observed best on a smaller time period like a 15 minute or 30 minute chart.
Medium Term Trendlines: You can draw these lines on a higher time period like a 60 minute chart. They connect the nearest noteworthy low to current price action to the previous significant low in an uptrend Forex market. They also connect the nearest significant high to current price action to the previous significant high in a downtrend market.
Long Term Trendlines: These lines are used for higher time periods like the 4 hour chart or the daily chart. You can draw them following the same method used for the Medium Term Trendlines. They can be powerful Forex trading tools, as traders of big institutions mostly use the daily chart. The big traders consult the daily chart within them before making decisions. So, you can present yourself right at the exact position of price.
You can easily use the Three Trendline Strategy as an effective Forex trading tool. The short-term trendlines can provide you a defined picture of the current price action, but they often break down during the day. You should not enter trades based on breaks of short-term trendlines. You should use them to get a clear, instantly recognizable graphical representation of current price behavior.
However, you should be careful and patient while using the trendlines as a Forex trading tool. You should also employ them with caution and discretion. If you cover your charts with every trendline possible, it may end in increasing confusion and foggy analysis. To get the best result by using the Three Trendline Strategy, you should use one or two trendlines at key or significant swing points. This will give you a clear picture of price action and you will get profitable trades, by combining them with your other Forex trading tools.
