In order to trade forex trend line setups successfully I follow a few simple rules . While there are many ideas to help you day trade trendlines in the forex market, these are but a few that should make any trend line trading strategy more robust when applied properly and accompanied with sound money management.
1.) Only trade the 3-5th test off a given trend line. Prior to bounce #3 the trend line is not established, and after the conclusion of test number #5 off a trend line the momentum in the forex market usually begins to die . The important point to gather here is no movement in the currency market is sustainable indefinatly, and although it is possable to profitably take a day trade off a trendline bounce #6 and beyond, your probability of a profitable trade decrease dramatically.
2.) Trade trend lines that are “ gradually sloping ”. If the trend line is at or above 45 degrees, the probability of it maintaining that trend line are less than a trend line of only 20 degrees. Rarely does the market travel in one direction without letup at a steep angle. When there is a steep drop or rise in price the forex market normally quickly changes direction thus eleminating any steep trend line and therefore should be avoided . The fact is it takes a huge amount of buying or selling pressure to cause the forex market to enter a sharp move, and steep trend lines even for a central bank are not eaisly sustained over the course of time.
3.) Always have a plan to enter when and/or if the price reaches a pre-determined trend line. Simply entering when the market hits the trend line is an option, and when used with stable money management could be successful. Another choice is to have an additional rule or requirement to signal an entry . One used frequently in our live forex trading room is discussed in the article titled, Forex Entry Signals For Day Trading – When To Enter which can be found by clicking the link at the bottom of the article which will take you to our site, Day Trading Forex Live.
4.) Only take a trend line trade during active periods of a trading session. During these liquid times such as when a forex market opens/closes, trend lines in the forex market will be respected with a higher frequency, and therefore tend to be more profitable over the course of time. Additionally these volotile times produce the largest moves and thus can dramatically increase the risk/reward of a given day trade setup because of the larger range.
5.) As with most other day trading strategies and scalping strategies , to give yourself the best chance of having a fruitful forex trade , only take a trend line entry signal in the direction of the overall trend. This ensures that even if the market goes against you and the trend line breaks , you still have the overall underlying trend in your favor . Over the course of time you will become more comfortable with this forex day trade strategy and thus more profitable. It is at this point only that you should you start to look for trades against the overall direction of the market .
When you trade the forex market with a plan your success rate goes up significantly over simply taking a forex trade when it “looks good”. Following these 5 simple rules to effectively day trade trend lines will bolster any forex day trading strategy that takes advantage of frequently occurring intra-day trend lines. If you would like to learn more about trading forex trendlines in the forex market, in addition to our other forex trading strategies , feel free to check out our site Day Trading Forex Live.
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