The trend line in the forex market is one the most used for analyzing the market with technical analysis. By using a trendline in trading, you can identify an uptrend or downtrend in the market. They can help you to identify potential support and resistance level zones too.
To draw a trend line, you need to connect wick of the candle that’s called the top with the other wick of the candle. The trend line can be drawn from the bottom too, by finding the wick of the candle that’s known as the bottom and connecting it with other wicks.
A trendline can be considered valid if it’s connected at least 2 times. During this lesson, you will also learn how to identify ascending channels and descending channels pattern. These price channels are similar to trend lines.
But when you draw a trend line from the tops and the bottoms, you have identified an ascending or descending channel pattern. These patterns are known as market chart patterns.
How to identify a bullish trendline (ascending channel pattern)
To identify a bullish trend line or ascending channel, first, you should use a trading platform that offers tools to analyze the foreign exchange market. Some trading platforms that offer that are MetaTrader, TradingView, etc.
The price chart on the image below shows an upper trendline with higher highs and higher lows. You can see that yellow-marked arrows point where the trend lines connected with the candles.
Because we have an uptrend then we need to draw trend lines from the bottom. The trendline has helped us to identify the trend direction of the currency market. And this could give us an opportunity to sell since we have an uptrend. A buy order near the bottoms where the second arrow is marked could give us a better entry price.
But you can also draw trend lines from the tops too and the tops can act as resistance lines. The example below shows that we can connect the trend line from tops too. So we have both tops and bottoms of the candles connected with the trend line.
By drawing, trend lines you can spot potential entry prices from the tops of the candles. And the example that’s shown it’s an ascending channel pattern. The ascending channel pattern helps you spot movements in the financial market that indicate that the price will continue bullish.
Or in cases where you have a buy order, then the tops connected with the trendline can show potential resistance level.
How to identify a bearish trendline (descending channel pattern)
Since you saw how to identify and trade the bullish trend lines and ascending channels, now let’s show you how to identify and trade bearish trend lines and descending channels.
This time we have a downtrend that has started and we have drawn the trendline too. But now we drew the trendline from tops since we need to identify a downtrend. This downtrend can give us an indication to short because we have a bearish momentum (downtrend).
But since the financial market can form any major zone level such as support lines at the bottoms, we can draw a trendline at the bottom too.
That’s called a descending channel pattern, and it’s similar to the ascending channel pattern. But the descending channel occurs only on downtrends. As you can see the price has retracted from the bottom and has tested the tops.
When you draw a descending channel, you’re identifying levels that can indicate that the price can continue falling down even more. And waiting for these levels or support zones to retest the tops, can give you a better price to open your trades.
A trendline is a useful tool that can help you identify potential movements in the markets. As we said, trendlines can be used to spot an uptrend or a downtrend too. You can also draw the trendlines from the tops or the bottoms.
These are called ascending channel patterns and descending channel patterns. Combining trendlines or price channel patterns with price action such as resistance level or support level, reversal candlestick charts, etc, can give you a better approach in the forex trading.
The examples we give on our blog are based on our technical analysis. But you as a trader should always trade according to your technical analysis and fundamental analysis.