Posted on March 5th, 2010
by Rapid Forex
I usually like to provide examples of trades that go short as well as long, bullish as well as bearish, show resistance as well as support, and downtrending as well as uptrending.
Many forex trainers just say “just flip everything upside down and it’ll work the other way…” We learn by examples, so I try to include examples of concepts both ways. You may have noticed that feature of this blog 
Earlier today I explained uptrend examples of trends and trendlines. As an appropriate follow-up, I’m going to apply the same idea to give you examples of downtrends.
Finding your inner, outer, and long-term outer trendlines in a downtrend
A downtrend (also called a downtrend price swing) is the exact opposite of an uptrend price swing.
In this case, the swing starts at a high and ends at a low.
The market is making lower highs and lower lows as prices decrease overall.
The downtrend starts high and ends lows
If you have identified that the market is in a downtrend (the market is making lower lows and lower highs), you should draw all three of your trendlines before making a trade. Generally speaking, you will draw a downward trendline across the levels of resistance (highs) as long as the market is making lower lows and lower highs.
To draw the inner downward trendline, locate the last two levels of resistance (beginning from the current market price at the right of the chart) and draw your trendline between those two levels, extending it forward and down to the right.
Remember that if the market is no longer making lower lows and lower highs, then the market is no longer in a downtrend and you will need to identify a new trendline. This is important to recognize because it could signify a trend reversal.
To draw the outer downward trendline locate all of the levels of resistance on your chart, beginning from the left side. Draw your trendline across those levels of resistance, extending it forward and down to the right.
To find the long-term outer downtrend you will need to look at a longer time frame, as you would in identifying the long-term outer uptrend. For example, if you locate your inner and outer trendlines looking at 5-minute candles, switch to a 60-minute candle chart to find the long-term outer downtrend.
When the inner trendline is broken it is likely that the market will move to the outer trendline. This holds whether the broken trendline is the inner trendline (the market would then move to the outer trendline) or the outer trendline (the market would then move to the long-term outer trendline).
Notice how there are a fan of three trendlines moving down?
Trading trendlines in a Downtrend
To trade an inner, outer, or long-term outer downward trendline, sell when the market hits the trendline, making sure to set your protective stop loss order at the last appropriate level of resistance.
As with an upward trendline, the inner, outer, and long-term outer downward trendlines may converge. This offers you a double-strength signal. In this case you have two good reasons to believe that the market will bounce.
My next post will give you some quick rules for trading trendlines. Have a fabulous weekend!
Posted in
Technical Analysis
Posted on March 5th, 2010
by Rapid Forex
Support and resistance, trends, trendlines, price swings, these are the basic tools of the forex trader. We always want to trade with the trend. Going against the trend is like trying to swim up-current. It’s much easier to go with the flow. This blog post will show you how to spot trends in the forex market.
Trendlines are an important tool in your toolbox as a Forex analyst and trader because they project price levels where the market is likely to bounce.
If you can draw trendlines correctly you will be able to define buy and sell zones and maximize your trading potential.
Both uptrends and downtrends can be defined by three primary trendlines: the inner trendline, the outer trendline, and the outer long-term trendline.
Finding your inner, outer, and long-term outer trendlines in an uptrend
An uptrend is a series of price swings where the market is making higher highs and higher lows. Just as there are trends inside of trends, there are price swings inside of swings.
An uptrend price swing starts at a low and ends at a high.
Price swing in an uptrend
In an uptrend, the market is making higher highs and higher lows (as prices increase overall).To draw a trendline when the market is in an uptrend, draw a line across the lows.
Remember: “the trend is your friend until it bends.”
In any trend, there are three main trendlines: the inner line, the outer line, and the long term outer line.
To draw a trendline in an uptrend, draw across all levels of support.
If you have identified that the market is in an uptrend (the market is making higher highs and higher lows), you should draw all three of your trendlines before making a trade.
To draw the inner upward trendline, locate the last two levels of support (beginning from the current market price at the right of the chart) and draw your trendline between those two levels, extending it forward and up to the right.
Next, draw your outer upward trendline. First locate all your levels of support. Then, starting from the left side of the chart, draw your trendline between all the levels of support, extending the line forward and up to the right.
You will find that if when the market breaks the inner trendline, prices generally move to the outer trendline.
Drawing the Third Trendline
To find the third trendline, the long-term outer trendline, you will need to switch your chart to show a longer timeframe. For example, if you locate your inner and outer trendlines on a 60-minute chart, switch to a daily chart to locate your long-term outer trendline.
Once you are looking at a longer time frame, drawing your outer long-term trendline is the same as drawing the outer trendline: after locating all your levels of support, start from the left side of the chart and draw your trendline between all those levels, extending the line forward and up to the right.
Just as the market will likely move to the outer trendline if the inner trendline is broken, so will the market likely move to the long-term outer trendline if the outer trendline is broken.
The principle behind the three types of trendlines is this: there are trends inside of trends. The market moves in swings, which viewed over a long period of time are long and slow moving. But there are other swings that exist inside of those market swings, and they can be found within shorter time periods. For example, you will be able to identify price swings (trends) looking at a daily chart that are not very volatile (the swings are, once again, long and slow moving).
Looking at the same currency cross on a 60-minute chart you will see trends that are more volatile (the swings are shorter and move more quickly). The smaller your time frame, the more swings you will see.
Three trendlines help you see important support levels
Trading trendlines in an uptrend
To trade the inner upward trendline, buy when the market hits the inner upward trendline. Set your protective stop loss order (as always) at the last level of support. To trade the outer or long-term outer trendlines, buy when the market hits the outer upward (or outer long-term upward) trendline, setting a protective stop loss order at the last level of support.
You will sometimes see the inner and outer trendlines converging. This convergence is like a double or extra-strong signal, offering you two hints that the market will bounce. In this case, buy when the market hits the inner and/or outer trendline setting your protective stop loss order at the last level of support.
Now you’ve been introduced to uptrends. In my next post, I’ll show you examples of downtrends.
Posted in
Technical Analysis
Posted on March 3rd, 2010
by Rapid Forex
Just as there are rules for trading Japanese candlesticks, there are also several rules you need to follow if you want to make wise trading decisions in the Forex market.
These rules are:
- Draw your support and resistance lines.
- Draw your trendlines. Remember: trade in the direction of the trend, because the trend is your friend. You want to be able to identify if the trend has been broken because you likely want to exit at that point.
- Decide whether you will go long or short (based on overall trend direction).
- Appropriately place your stop loss orders. For information on how to place stop loss orders when trading on support and resistance levels, see above. If the stop is too far away from your entry point the risk may be too great and you should consider passing on the trade.
- Create a plan. Trade the plan. Traders get in big trouble when they become emotionally invested in a particular trade and so hang on too long to a losing trade. Even if you follow all of the trading rules and trade all of your indicators correctly, you will lose on some trades, just as any business takes losses as well as profits. By sticking to your trading plan you will maximize your profits and minimize your losses.
Past Resistance Levels can become Future Support Levels
As you read earlier, a bull wants to see the market achieve new highs, taking out previous levels of resistance and a bear wants to see the market taking out previous levels of support.
Sometimes past levels of resistance can turn into levels of support. This happens when the market has broken a the current level of resistance, but before it goes on to break the next level of resistance it bounces (bottoms) at the first level of resistance, which then becomes a level of support.
Eventually the market will break the support level (once a resistance level) instead of bouncing there, indicating a trend reversal. To trade in this situation, buy at the support levels and set your stop loss order at the last support.
See how the previous resistance level became a new support?
Past Support Levels can become future Resistance Levels
Past levels of support can also turn into levels of resistance. This happens when the market has broken the current level of support, but before it goes on to break the next level of support it bounces (tops) at the first level of support, which then becomes a level of resistance.
Eventually the market will break the resistance level (once a support level) instead of bouncing there, indicating a trend reversal. To trade in this situation, sell at the resistance levels and set your stop loss order at the last resistance.
See how the old support level becomes a new resistance level?
That concludes my basic overview of support and resistance for forex trading. This topic will come up when explaining future trades, so make sure you review the basics about support and resistance in the forex market until you fully understand them.
Posted in
Technical Analysis
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on