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A trendline is a diagonal line that connects points serving as support or resistance. If the diagonal line connects points of support, it is called an uptrend line. If it connects points of resistance, it is called a downtrend line. Traders use trendlines to make educated guesses as to where the price will reverse.

An example trendline

From this chart, we can see that JPY/USD encountered three points of resistance from January to March, 2018. The first was hit in mid-January. The second was hit in early February. And the third was hit in late February. A diagonal line can be drawn connecting these three points. This implies that JPY/USD was in a downtrend during this time-period.

We can also see that from March to November, two major areas of support were hit. The first came in late March, while the second came in October. A diagonal line can be drawn connecting these two areas of support. This implies that JPY/USD was in an uptrend during this time-period.

Drawing a trendline

To draw a trendline, simply locate two major tops or bottoms and connect them with a diagonal line. This line should not cross the price at any point. For example, the chart below shows an incorrectly drawn trendline.

It might be tempting to draw the uptrend line this way, since it shows the price bouncing off the line four or five different times. However, this trendline is incorrect because the price passes through the line several times, instead of merely bouncing off it.

By contrast, here is another valid uptrend line that could be drawn from this chart. This could be considered an alternative to the one shown in the first image

A few points that should be kept in mind when using trendlines:

  • A trendline can be drawn with only two points. But the strongest lines have at least three points to them
  • The steeper a trendline is, the less reliable
  • The more often a trendline is tested, the stronger it is

 

Channels

Once we have a trendline drawn, we can draw a channel. Channels give us even more information about a particular trend.
To draw one, simply create a line that is parallel to the uptrend or downtrend line already drawn.

As with normal trendlines, the defining lines of a channel should not cross the price. A channel that slopes upward is called an ascending channel. A channel that slopes downward is called a descending channel.

How to trade using trendlines and channels

Here are a few ways to trade using trendlines and channels:

  • Buy at the bottom of a channel. Sell at the top
  • Go short at the top of a channel and buy back at the bottom
  • To limit risk, put a stop just above the top of a channel or just below the bottom
  • Buy and hold during an uptrend. Sell when the trend breaks down
  • Go short during a downtrend. Exit when the trend breaks

 

Trendlines are diagonal lines that connect areas of support and resistance. When combined together to make channels, trendlines can be a useful tool to find entry and exit points in trades.

In Forex, a moving average (MA) is a line that depicts the average price of a currency pair over a number of previous periods. For example, a 10-day MA is a line where each point is made up of the average price for the past 10 days.

Moving averages show dynamic levels of support and resistance. Prices often struggle to break through moving averages. And once the price does break through, it tends to carry momentum.

Moving average example

In this chart, the red line is the 10-day moving average. The price hit this line several times in September, 2018. But the first few times, this line offered resistance, and the price failed to break through. In late September, this line was finally broken.

A strong rally followed this break as the price moved from 0.96662 to 0.99537. When this rally lost momentum around October 9th, the price returned to the 10-day moving average, which now offered support. The price then attempted to break this support, first in the second week of October and then again in late October and early November. In both cases, the 10-day moving average provided strong support, and the price continued upward.

Types of moving averages

Moving averages can be either simple or exponential.

Simple moving average

The points to a simple moving average (SMA) are calculated by adding the closing prices of the last X periods and dividing them by X, where X is the number of periods specified.

For example, the point corresponding to the 21-hour SMA for USD/CHF at 12:00 noon can be calculated by adding the prices for USD/CHF at 12:00 noon, 11 a.m., 10 a.m., etc. all the way back to 3 p.m. the previous day (21 hours earlier), then dividing them by 21. If this point is recalculated and plotted each hour, it results in the 21-hour SMA.

A simple moving average can be used to gain a broad overview of the direction a currency pair is trending. Because an SMA does not emphasize recent price action, it is slower to respond to changes in trend than an EMA is. For this reason, an SMA is most useful when the trader wants to filter out the “noise” of recent price spikes.

Exponential moving average

The points to an exponential moving average (EMA) are calculated using the following equation: {Current closing price times [2 ÷ (time period + 1)] + [EMA point from the prior day times {1 – [2 ÷ (time period + 1)]}}.

EMAs respond more quickly to current price action than do SMAs. For this reason, they are favored for shorter time periods and for circumstances where a trader wants to catch sudden changes in trend. The moving average in the screenshot near the top of this page is an example of an EMA.

Here are a few ways to trade using moving averages.

    • If the price is below the moving average, wait for it to rise until it hits the MA, then sell
    • If the price is above the MA, wait for it to fall until it hits, then buy
    • Wait for an MA of a shorter time-period to cross the MA of a longer time-period from below. Buy when this happens. Exit when the crossover happens in the other direction

    • Wait for an MA of a shorter time-period to cross the MA of a longer time-period from above. Sell when this happens. Exit when the crossover happens in the other direction

 

Moving averages are lines that represent the average price of a currency pair over the course of a specific time-period. They can be a useful tool to determine the overall trend of a currency’s price. Because of this, they can be useful for finding profitable trading opportunities.

Most indicators are only useful for providing information about one aspect of the market. For example, ADX and moving averages provide information about the general trend, while stochastic and RSI provide information about momentum. For this reason, trading systems that incorporate more than one indicator are usually more successful than single indicator systems. This article will provide some ideas for how to trade using multiple indicators.

Before an indicator can be combined with others into a system, its type needs to be understood. Combining indicators of the same type often leads to the same signal being repeated. That can cause a trader to misidentify the strength of the signal being given. The best trading systems combine indicators of different types.

Here is a list of indicator types, along with some examples of indicators that fit into each category:

Momentum
Momentum indicators measure the speed at which price is moving. This allows a trader to determine whether a currency pair is overbought or oversold. This category includes RSI, Stochastic, and Commodity Channel Index (CCI) amongst others. MACD can be used as either a momentum or trend indicator.

Trend
Trend indicators measure whether the market is trending or ranging. They also sometimes measure the direction of the trend. This allows a trader to catch breakouts early, when potential profits are the greatest. ADX, moving averages, and Parabolic SAR are examples of pure trend indicators. MACD can be used as either a trend or momentum indicator. Bollinger bands can also be used as either a trend or volatility indicator.

Volatility
Volatility indicators measure how quickly the price is moving up or down. This allows traders to catch breakouts when volatility increases. Envelopes and Average True Range are examples of volatility indicators. Bollinger bands can also be placed in this category.

Trading using multiple indicators

Here are two examples of systems that incorporate multiple indicators:

Bollinger bands and Stochastic
When Stochastic is below 20%, the currency pair is considered to be “oversold.” When it is above 80%, it is considered to be “overbought.” However, Stochastic by itself can often give false signals. This is because currencies often remain overbought or oversold for long periods before they finally reverse.

Using Bollinger bands by itself can also result in false signals. Sometimes buying when the price hits the bottom band and selling when the price hits the top band is profitable. Other times, the price hits the top or bottom band because the price is breaking out of a range, resulting in a crushing loss for anyone who thought it would return to the middle band quickly.

If a trader combines Bollinger bands with Stochastic though, it can result in less false signals. Here is an example:

In this chart, the price hit the top of the upper band at around 9:45 a.m., giving a sell signal. But Stochastic showed the pair was not overbought, since it was not above 80%. Having stochastic as an additional indicator could have allowed a trader to avoid losses here.

Moving averages and RSI

Moving averages and RSI can also give false signals by themselves but work better when combined with each other. In this case, a trader can use a moving average crossover as a sell signal, but exclude cases where RSI is not below 50. A similar strategy can be used for buy signals if the trader excludes signals where RSI is not above 50.

Using multiple indicators often leads to more success when compared to using just one. But traders need to only add indicators that provide new information. Using more than one indicator of the same type should be avoided if possible. This is how one can trade using multiple indicators.

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A trendline is a diagonal line that connects points serving as support or resistance. If the diagonal line connects points of support, it is called an uptrend line. If it connects points of resistance, it is called a downtrend line. Traders use trendlines to make educated guesses as to where the price will reverse.

An example trendline

From this chart, we can see that JPY/USD encountered three points of resistance from January to March, 2018. The first was hit in mid-January. The second was hit in early February. And the third was hit in late February. A diagonal line can be drawn connecting these three points. This implies that JPY/USD was in a downtrend during this time-period.

We can also see that from March to November, two major areas of support were hit. The first came in late March, while the second came in October. A diagonal line can be drawn connecting these two areas of support. This implies that JPY/USD was in an uptrend during this time-period.

Drawing a trendline

To draw a trendline, simply locate two major tops or bottoms and connect them with a diagonal line. This line should not cross the price at any point. For example, the chart below shows an incorrectly drawn trendline.

It might be tempting to draw the uptrend line this way, since it shows the price bouncing off the line four or five different times. However, this trendline is incorrect because the price passes through the line several times, instead of merely bouncing off it.

By contrast, here is another valid uptrend line that could be drawn from this chart. This could be considered an alternative to the one shown in the first image

A few points that should be kept in mind when using trendlines:

  • A trendline can be drawn with only two points. But the strongest lines have at least three points to them
  • The steeper a trendline is, the less reliable
  • The more often a trendline is tested, the stronger it is

 

Channels

Once we have a trendline drawn, we can draw a channel. Channels give us even more information about a particular trend.
To draw one, simply create a line that is parallel to the uptrend or downtrend line already drawn.

As with normal trendlines, the defining lines of a channel should not cross the price. A channel that slopes upward is called an ascending channel. A channel that slopes downward is called a descending channel.

How to trade using trendlines and channels

Here are a few ways to trade using trendlines and channels:

  • Buy at the bottom of a channel. Sell at the top
  • Go short at the top of a channel and buy back at the bottom
  • To limit risk, put a stop just above the top of a channel or just below the bottom
  • Buy and hold during an uptrend. Sell when the trend breaks down
  • Go short during a downtrend. Exit when the trend breaks

 

Trendlines are diagonal lines that connect areas of support and resistance. When combined together to make channels, trendlines can be a useful tool to find entry and exit points in trades.


In Forex, a moving average (MA) is a line that depicts the average price of a currency pair over a number of previous periods. For example, a 10-day MA is a line where each point is made up of the average price for the past 10 days.

Moving averages show dynamic levels of support and resistance. Prices often struggle to break through moving averages. And once the price does break through, it tends to carry momentum.

Moving average example

In this chart, the red line is the 10-day moving average. The price hit this line several times in September, 2018. But the first few times, this line offered resistance, and the price failed to break through. In late September, this line was finally broken.

A strong rally followed this break as the price moved from 0.96662 to 0.99537. When this rally lost momentum around October 9th, the price returned to the 10-day moving average, which now offered support. The price then attempted to break this support, first in the second week of October and then again in late October and early November. In both cases, the 10-day moving average provided strong support, and the price continued upward.

Types of moving averages

Moving averages can be either simple or exponential.

Simple moving average

The points to a simple moving average (SMA) are calculated by adding the closing prices of the last X periods and dividing them by X, where X is the number of periods specified.

For example, the point corresponding to the 21-hour SMA for USD/CHF at 12:00 noon can be calculated by adding the prices for USD/CHF at 12:00 noon, 11 a.m., 10 a.m., etc. all the way back to 3 p.m. the previous day (21 hours earlier), then dividing them by 21. If this point is recalculated and plotted each hour, it results in the 21-hour SMA.

A simple moving average can be used to gain a broad overview of the direction a currency pair is trending. Because an SMA does not emphasize recent price action, it is slower to respond to changes in trend than an EMA is. For this reason, an SMA is most useful when the trader wants to filter out the “noise” of recent price spikes.

Exponential moving average

The points to an exponential moving average (EMA) are calculated using the following equation: {Current closing price times [2 ÷ (time period + 1)] + [EMA point from the prior day times {1 – [2 ÷ (time period + 1)]}}.

EMAs respond more quickly to current price action than do SMAs. For this reason, they are favored for shorter time periods and for circumstances where a trader wants to catch sudden changes in trend. The moving average in the screenshot near the top of this page is an example of an EMA.

Here are a few ways to trade using moving averages.

    • If the price is below the moving average, wait for it to rise until it hits the MA, then sell
    • If the price is above the MA, wait for it to fall until it hits, then buy
    • Wait for an MA of a shorter time-period to cross the MA of a longer time-period from below. Buy when this happens. Exit when the crossover happens in the other direction

    • Wait for an MA of a shorter time-period to cross the MA of a longer time-period from above. Sell when this happens. Exit when the crossover happens in the other direction

 

Moving averages are lines that represent the average price of a currency pair over the course of a specific time-period. They can be a useful tool to determine the overall trend of a currency’s price. Because of this, they can be useful for finding profitable trading opportunities.


Most indicators are only useful for providing information about one aspect of the market. For example, ADX and moving averages provide information about the general trend, while stochastic and RSI provide information about momentum. For this reason, trading systems that incorporate more than one indicator are usually more successful than single indicator systems. This article will provide some ideas for how to trade using multiple indicators.

Before an indicator can be combined with others into a system, its type needs to be understood. Combining indicators of the same type often leads to the same signal being repeated. That can cause a trader to misidentify the strength of the signal being given. The best trading systems combine indicators of different types.

Here is a list of indicator types, along with some examples of indicators that fit into each category:

Momentum
Momentum indicators measure the speed at which price is moving. This allows a trader to determine whether a currency pair is overbought or oversold. This category includes RSI, Stochastic, and Commodity Channel Index (CCI) amongst others. MACD can be used as either a momentum or trend indicator.

Trend
Trend indicators measure whether the market is trending or ranging. They also sometimes measure the direction of the trend. This allows a trader to catch breakouts early, when potential profits are the greatest. ADX, moving averages, and Parabolic SAR are examples of pure trend indicators. MACD can be used as either a trend or momentum indicator. Bollinger bands can also be used as either a trend or volatility indicator.

Volatility
Volatility indicators measure how quickly the price is moving up or down. This allows traders to catch breakouts when volatility increases. Envelopes and Average True Range are examples of volatility indicators. Bollinger bands can also be placed in this category.

Trading using multiple indicators

Here are two examples of systems that incorporate multiple indicators:

Bollinger bands and Stochastic
When Stochastic is below 20%, the currency pair is considered to be “oversold.” When it is above 80%, it is considered to be “overbought.” However, Stochastic by itself can often give false signals. This is because currencies often remain overbought or oversold for long periods before they finally reverse.

Using Bollinger bands by itself can also result in false signals. Sometimes buying when the price hits the bottom band and selling when the price hits the top band is profitable. Other times, the price hits the top or bottom band because the price is breaking out of a range, resulting in a crushing loss for anyone who thought it would return to the middle band quickly.

If a trader combines Bollinger bands with Stochastic though, it can result in less false signals. Here is an example:

In this chart, the price hit the top of the upper band at around 9:45 a.m., giving a sell signal. But Stochastic showed the pair was not overbought, since it was not above 80%. Having stochastic as an additional indicator could have allowed a trader to avoid losses here.

Moving averages and RSI

Moving averages and RSI can also give false signals by themselves but work better when combined with each other. In this case, a trader can use a moving average crossover as a sell signal, but exclude cases where RSI is not below 50. A similar strategy can be used for buy signals if the trader excludes signals where RSI is not above 50.

Using multiple indicators often leads to more success when compared to using just one. But traders need to only add indicators that provide new information. Using more than one indicator of the same type should be avoided if possible. This is how one can trade using multiple indicators.