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TRENDLINE TRADING STRATEGYSECRETS REVEALED1www.forextrendlinetrading.com
All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, or transmitted in any form or by any means, electronic, mechanical,or by photocopying, recording or otherwise without the permission of MyronnSaremo.DISCLAIMERTrading in the Forex market is a challenging opportunity where above averagereturns are available to educate and experienced investors who are willing to takeabove average risk. However, before deciding to participate in Forex trading, youshould carefully consider your investment objectives, level of experience and riskappetite. Most importantly, do not invest money you cannot afford to lose.There is considerable exposure to risk in any foreign exchange transaction. Anytransaction involving currencies involves risks including, but not limited to, thepotential for changing political and/or economic conditions that may substantiallyaffect the price or liquidity of a currency.Moreover, the leveraged nature of FX trading means that any market movement willhave an equally proportional effect on your deposited funds. This may work againstyou as well as for you. The possibility exists that you could sustain a total loss ofinitial margin funds and be required to deposit additional funds to maintain yourposition. If you fail to meet any margin call within the time prescribed, your positionwill be liquidated, without prior notice to you, and you will be responsible for anyresulting losses. Investors may lower their exposure to risk by employing proper riskmanagement practices.2www.forextrendlinetrading.com
INTRODUCTIONOn the chart below: only 3 trades and 800 pips of floating profit, majority ofprofits locked and I am not out yet. and all this is in just one week. This pairwas still heading down when I got its screenshot. When I closed all the 3trades, it was more than 800pips in total profit.USDCHF trade: Pinpoint Deadly Accuracy. The trendline entry was taken inthe 5min timeframe.3www.forextrendlinetrading.com
This is how it was turning out almost 7 hours later.This is the power of the Trendline Trading Strategy and it: is dead-simple to use allows you enter high probability trades with pin-point accuracy andcapture maximum profits effortlessly is price-driven entry based on what happens on touch of Trendlines is a trend following strategy that will allows you to make trades with thetrend which means you have the odds stacked on your side.OVERVIEW OF TRENDLINE TRADING STRATEGYTimeframes:AnyCurrency om
This is a general setup for Long Entry(or buy setup).This figure below is a general setup for Short Entry(or sell setup).5www.forextrendlinetrading.com
You could have taken these trades shown below with almost pin-point deadlyaccuracy with the Trendline Strategy.I want you to notice how the market reacted and responded to thetrendlines drawn above.How many times did price bounce up on the first trendline? 4 Times, therefore4 opportunities to buy(or go long).Trendline Trading Strategy also allows you to get in at almost the beginning ofa new trend or start of market swings (tops or bottoms) or if you miss thebeginning, you hop in along the way and this makes it one of the best swingtrading systems simply because it does not involve indicators but just anability to trend a trendline and use that with price action alone.Let me show you one more chart.Notice how many times price reacted and obeyed this trendline below. Wouldyou have made money if you had gone short? Yes.This is about KEEPING IT SIMPLE.6www.forextrendlinetrading.com
Before I get you into the rules of the Trendline Trading Strategy, youneed to build a good foundation of understating how this trading strategyworks.This includes: how to draw valid trendlines when is a trendline still valid and when does it becomes invalid understanding some common mistakes in drawing trendlines how to know which trendlines are most likely to hold and which oneswill not support and resistance and how to use them to your advantage understanding trends and know when they may be starting or ending technical analysis-the best way to analyse your charts without toomany indicators (matter of fact, you don’t need any indicator at all butjust price)Having a good understanding of the points listed above is very essential forthe successful application of the Trendline Trading Strategy.HOW TO DRAW VALID TRENDLINESThere are two types of trendlines, the upward (or uptrend) trendline anddownward (downtrend) trendline. How do you draw trendlines? Easy, in 2simple steps. Here they are:STEP#1: Identify obvious peaks and troughs.STEP#2(A): Connect a minimum of 2 peaks (or highs) with a line from left toright and you have a downward trendline.STEP#2(B) Connect a minimum of 2 troughs (or lows) with a line and youhave an upward trendline.7www.forextrendlinetrading.com
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Key points you need to know: When you draw trendlines, they would usually fall into the outertrendline and the inner trendline.Outer trendlines are the usually the main trendlines drawn from muchsignificant peaks or troughs and they are quite obvious in the largertimeframes like 1hr and 4hr and upwards.Inner trendlines are trendlines drawn within or inside the outertrendlines and generally, you when you switch to smaller timeframes,you tend to get a lot of inner trendlines.These peaks and troughs that are used to draw inner trendlines aresometimes quite difficult to spot if you are in a larger timeframe like the4hr or the daily but when you switch to the 1hr or the 30min and 15min, the peaks and troughs become obvious to draw these innertrendlines. That is how simple it is to draw trendlines.Now, for most beginners, the confusion begins whenthey look at a chart and see too many lows and highsand they just cannot figure out which two they are goingto use to draw a trendline.The solution to this problem comes down to prioritizing which lows or highs touse and the general rule is this: For lows, the one with more higher candlesticks on its left and right willbe more significant than the one with lesser candlesticks on its left andrightAnd it works the same for highs except that it is completely opposite:you should be looking for more lower candlesticks. 9www.forextrendlinetrading.com
The chart below makes this concept a lot clearer.There are 3 significant lows on the chart (numbered 1, 2 & 3) and notice thaton each of these lows, there are more higher candlesticks on both the leftand the right sides of the low.In other words, you look for highs and lows that are easy to spot. Let meexplain further: When you select the 2 highs (for drawing downward trendline) or the 2lows (for drawing upward trendline) they must be visible or obvious toeveryone else. There should be no ambiguity. Everyone else must beable to able to see or spot them clearly.And if the lows or highs can be clearly seen and identified, that meansthat they are significant because that is where the market has beenobserved to reverse significantly.On the chart below, how many “visible” or obvious.AND, therefore significantlows can you find?I can see 4.can you?10www.forextrendlinetrading.com
Here they are.So there you have it.And this is what you get when you draw an upward trendline connecting thefirst two lows.and on the 3rd and the 4th low when price came back down totest the trendline, you could have entered long with very LOW risk and madegood amount of profit in each trade.Here is another one.Notice on the chart below, the Lows are obvious andtherefore easy to spot (significant) and the result is you get a nice upwardbounce when price came down tested the trendline that was drawn.11www.forextrendlinetrading.com
A downward trendline is trendline drawn when you connect a minimum of 2peaks or highs as shown below. Notice that the peaks or highs are obviousand are easily spotted by everyone.So now this should clear any confusions about deciding which high or lows touse to draw a trendline.12www.forextrendlinetrading.com
But I also notice that many great trade setups occur on trendlines drawn frominsignificant lows or highs.or from combination of both significant andinsignificant lows or highs.what can you say about that?If you are a beginner.to avoid the confusion, stick to only drawing trendlinesbased on significant highs (peaks) or lows(troughs). As you gain moreexperience and confidence, you can start trading off trendlines drawn oninsignificant lows or highs or combination of insignificant and significant lowsor highs.The chart below shows an example of this situation.These trendlines drawn from insignificant peaks or troughs are simply innertrendlines.It does take a bit of practice and skill to be able to draw inner trendlines whenit comes to picking which two points to use. The more you practice, the moreyou will be able to do this easily.VALID AND INVALID TRENDLINES A trendline is valid as long as it is not intersected significantly and pricecontinues to obey it.A trendline becomes invalid when it is intersected significantly and thiscould mean that the trend has now probably changed.How can you tell if a trendline is “intersected significantly” which could mean atrendline breakout or not?There is no exact formula to determine that, but here are 3 things that I look for:#1: The candlestick that intersected the trendline, has it CLOSED above or below it?13www.forextrendlinetrading.com
#2: The length of the body of the candlestick (if it is long or short) that closed abovethe downward trendline and below the upward trendline.#3: The CLOSE of the 1hr or the 4hr candlesticksI will explain in detail now.#1: The candlestick that intersected the trendline, has it CLOSED above or below it?If a candlestick closes above a downward trendline by a significant distancethen that may be a signal that the downward trendline is now violated.The opposite is also true for an upward trendline: if the candlestick closesbelow it significantly, that may be a signal that the upward trendline is nowviolated and the price would now be heading downward.If a candlestick just intersects but fails to close above/below adownward/upward trendline, then expect the trendline to be obeyed.#2: The length of the body of the candlestick (if it is long or short) that closed abovethe downward trendline and below the upward trendline.The longer the length of the body of the candlestick that closes above/below adownward/upward trendline, the greater the possibility that the trendline hasnow been violated.Note:If you see that a shorter length of the body of the candlestick that intersected the trendline thatclosed above/below a trendline, this is a likely indication that the market has lost its momentumand even though it has intersected the trendline and may close above/below it, there is greatpossibility that the price will continue to obey the existing trendline.You would need additional confirmation and the best way is the use of reversal candlesticks.More on that later.#3: The CLOSE of the 1hr or the 4hr candlesticks The close of 1hr and 4hr timeframe candlesticks are very important indetermining if the trendline is likely to be broken on not.If you see a 1hr candlestick closed below an upward trendline, there isa great chance that that trendline is now intersected and price willcontinue to move down.The opposite is also true for downward trendline.Generally, the 1hr close above or below a trendline hasmore significance than any other timeframe closes.That is why on many occasions, you see a trendline intersected significantly ina much smaller timeframe like the 5min, 15min or 30 min and you may thinkthat the trendline is intersected but then the 1hr candlestick eventually closes14www.forextrendlinetrading.com
above(or below it for downward trendline) and then you see price continue toobey the trendline.For example: This is the 5min chart showing the upward trendline beingintersected and couple of candlesticks closing below the trendline.The next chart is the 1hr chart of the same pair above showing the 1hrcandlestick(red) which intersected BUT closed above the upward trendline.And this is the chart showing what happened next as the result of the 1hrcandlestick close.15www.forextrendlinetrading.com
1hr & 4hr candlestick closes are very important, remember that.Do you understand what I’m showing you here?Ok, one more example of using the 1hr and 4hr closes then.In the 1hr chart below, notice that the downward trendline is intersectedsignificantly. Remember what I mentioned above about length of the body ofthe candlesticks? Looks like trendline is intersected significantly because the1hr candlestick closed significantly above the downward trendline.what doyou think?16www.forextrendlinetrading.com
About 3hrs later in the 4hr chart, this is what happened.Now, what do youthink is most likely to happen?And this is how it turned out.Can you see how important the closes of 1hr and 4hr closes are now? 17Start paying attention to the closes now especially when they happenaround trendline entry points.You need to also pay careful attention to the lengths of the bodies ofcandlesticks around trendline entry points because they will give youan indication of the sentiment of the market.www.forextrendlinetrading.com
On the chart below. there are 2 downward trendlines. In each instance,observe that the candlesticks that intersected the trendlines to the upsidewere very bullish candlesticks with very long body and they closedsignificantly above the trendlines resulting in the trendlines becoming invalid.Notice in the chart below that the candlestick that intersected and closedabove the trendline lacked upward momentum (very short body failing to closeeven more than 50% above the trendline) and what happened is the price ismade to obey the trendline once again as the market took a nose-dive.One more example.18www.forextrendlinetrading.com
What can you say about the length of the bodies of the candlesticksnumbered 1, 2 & 3? Do you notice something? And what happened after that?The first chart above shows 2 very bullish candlesticks #1 with very longbodies indicating a very strong upward momentum. Then #3 candlestick isformed, by contrast, it has a very shorter body than the first two. So we knowthe market is losing its steam. The second chart is what happened as a resultof the #3 candlestick. Got it?The full chart is shown below so you get a bigger picture of how this oneturned out.Now you may ask, does it always have to be short candlesticks? No, longcandlesticks too can be included. But guess what? All that will be revealedsoon.Keep reading.4 COMMON MISTAKES IN DRAWING TRENDLINES19www.forextrendlinetrading.com
Let me be honest here. The successful application of the trendline tradingstrategy depends a lot on you drawing quality and valid trendlines. You justcannot afford to mess up with this, ok? You’ve got to be precise, spot on.Here are some common mistakes I have observed from many traders askingme if they where drawing the right trendlines or not.Mistake#1: Drawing trendline through an obstruction.There should not be any price obstruction between point 1&2. This ishighlighted by the blue area with an “x”.Similarly for drawing upward Trendlines. Between point 1 and 2, there mustbe no price obstruction.Mistake#2: Drawing Through Wick and Body of CandlesticksSome beginners draw a line through the general direction of the trend. Theybreak all the rules here. If the trend line is drawn and crosses a lot of wicksand body of candlesticks, it does not give you any information regardingwhere the support or resistance level is located. This is a wrong way to drawa trendline.20www.forextrendlinetrading.com
Mistake#3: Not drawing a New Trendline and Keeping A Breached TrendlineThis is the case where there is a FALSE break or breach of a trendline andthen market continues in the original trend direction it was heading previously.If the price breaks the trend line significantly, that trend line is no longer valid.If the market continues in the same direction then a new trend line can bedrawn as shown in the chart below based on the new high (or low) that isformed.Ok, what if the breaching is not significant? What if price forms a high (peak) ora low (trough) after breaching or intersecting a trendline (not significantly) BUTlater goes back and continues to obey that trendline.should you keep the existingtrendline or draw a new one?The best practice is to draw a new trendline.21www.forextrendlinetrading.com
However, even in saying that: I usually keep the breached trendline because price is stillobeying it and I would ALSO draw the new trendline using thenew high or low point that was made. My reason for keeping the breached trendline is based ONLYon: HOW FAR the price has moved in relation to the trendlinethat was breached. If significant like the above chart, I will not keep that trendline.Why do I do that? I will show you why. See the chart below?Price breached and made a low under the red trendline and then came backup and started to obey this trendline again and some time later, an opportunityto Buy for a 2nd time was presented which could have resulted in a highlysuccessful trade.If I had removed the first trendline (red) simply because it was temporarilybreached, I would have missed out on taking a nice trade setup.That’s why I would still keep breached trendline depending on how far awaythe price has moved and also pay close attention to candlestick patternsaround this kind of setup as well.How Far Away in Pips is reasonable to keep a breached trendline?Quite Difficult to give an exact answer on this because the “howmany pips” also depends on the timeframes. So for example: in a5min timeframe, keeping a breached trendline which is 5-10 pipsaway is still ok but wont be ok if its like 30 pips. In 1hr timeframe, 20-40pips is reasonable. In 4hr timeframe, keeping a breached trendline 40-60pips will still be ok because it is a larger timeframe.22www.forextrendlinetrading.com
Mistake#4: Drawing Trendlines that are NOT touching the peaks or troughsThis is one major mistake that I have observed a lot. What happens is thattraders fail to actually connect the 2 peaks or troughs that are required todraw a trendline. The trendline MUST touch these two points that you use todraw the trendline.If you fail to do this properly, you will have situations like shown on the chartbelow where the trendline is not touched and price moves away from it.AND.if you were waiting for a touch of trendline so that you canenter.Guess what? You will NEVER get it!STRONG AND WEAK TRENDLINESThe more times price comes, touches and then is made to obey a trendlinedetermines the strength of the trendline.23www.forextrendlinetrading.com
If price is made to obey a trendline more than once,consider that as a strong trendline.Additionally, there is something else which I also use to give me an indicationof how strong a trendline will be: the steepness of the trendline. You may alsocall it the slope of the trendline.You will notice on charts that the most reliable or strong trendlines are gentlysloping trendlines. The steeply sloping trendlines are generally, veryunreliable.Why are steep trendlines most often the weak or unreliable ones?The market cannot be sustained at this steepness for a very long time.that’swhy!For very steep trendlines, price usually obeys the trendlines only once orsometimes none at all.In the chart below, notice that price climbed up at a very steep angle, andeven couldn’t obey or find support on the very steep trendline that wasdrawn.it just busted its way right down. Later price found a much lower levelof steepness which was sustainable, and then it continued to move up again.24www.forextrendlinetrading.com
Price tends to react predictably on gentle slopingtrendlines by obeying it than on steep trendlines.The chart below show shows what I mean. Also notice how the marketreacted and how many times it obeyed this trendline.25www.forextrendlinetrading.com
Here is another example.Gently sloping trendlines are very strong trendlines so always keep an eye formultiple trendline trading setups.This information is very important because:#1: If you are in a trade based on a steep trendline entry on the first buy orsell setup, you should look to take your profit quickly, lock in your profitsquickly or move to break even quickly because, you know that thesteepness cannot be sustained for a very long period of time.#2: Don’t rush to get in on a trade based on a steep trendline especially if itis on the 2nd or 3rd buy or sell setup as there is a greater probability thatthe market would have lost its steam by then and may start to reverse veryquickly.SUPPORT AND RESISTANCEWhen we draw trendlines, we are operating on two very important concepts:Support and Resistance.Trendlines whether up or down, when drawn on a chartindicates where price is most likely to find diagonalsupport and resistance in the future.In a bearish trending market, the downward trend line provides the resistance:price go up and reverses back down from the trendline.26www.forextrendlinetrading.com
In a bullish trending market, the upward trendline provides support for prices:prices go down touch the trendline and bounce back up from the supportprovided by the upward trendline.Trendline are as good as long as price keeps obeying it. When price breaks orintersects a trendline that may signify a trend change.Trendlines provide support and resistance diagonally and should not beconfused with horizontal support and resistance levels.But I will show you a technique here where you can actually combine thesetwo for trade entry setups.27www.forextrendlinetrading.com
COMBINING TRENDLINE SUPPORT AND RESISTANCE WITH HORIZONTAL SUPPORT ANDRESISTANCE FOR TRADE SETUPS & ENTRIESThis is one of the most powerful techniques to get into high probability tradesand it is to your greatest advantage to be able to spot this setup when thishappens and take trades based on that.See chart below.A trendline entry setup happens which also coincides with a previousresistance level intersected now turned support. Now you have two supportsworking for you at the same time at the same level: the trendline providing support and the previous resistance level turned support also providing support.So what is the most likely direction price is going to go? Up!How does a short trade setup look? Just the exact opposite! The previoussupport level broken becomes resistance level and the level where thishappens coincides with a downward trendline entry point. A chart of thissituation is show below.28www.forextrendlinetrading.com
Now, the two charts below show another way in which you can use trendlinesand horizontal support and resistance levels. This chart below shows atrendline short trade setup that coincides perfectly with horizontal resistancelevels.The exact but opposite setup for the above chart but this time, it is the longsetup based on support levels coinciding with upward trendline entry.So now you know: When you are trying to enter into a trade based on a trendline setup,keep this also in the back of your mind. It is a good practice to check to see the level where you are entering atrade has a :(a)horizontal support level or(b) horizontal resistance level or(c)support level-broken-turned resistance level or(d)resistance level-broken-turned support level29www.forextrendlinetrading.com
working in your favour or not.As a trader, you’ve got to be aware of these kinds of things and don’t take itlightly.THE TREND IS YOUR FRIENDFollow the trend and get paid big time.If the market is moving downward, it will CONTINUE tomove in that direction until an opposite force comesinto play.What opposite force? Support levels, upward trendlines, news. These are thethings that can change the direction of the market.Can you paddle a canoe upstream? In some cases you can but only for ashort while because you are going against the current and sooner or later youwill tire out and quit. Same thing in forex trading.Plain simple concept but many totally ignore this and pay a high price for that.The first thing when you open a chart within less then 5 seconds you shouldknow what the present trend is and you should also know if a trend might beending and a new one starting. This section is about that.What is a trend? Trend is simply the overall direction in which price is moving:up, down or sideways. There are 3 types of trends. An uptrend, a downtrendand a sideways trend. An uptrend is where there is a consistent move higher where themarket is making successive Higher Highs (HH) and also Higher Lows(LH) A downtrend is where there is a consistent move lower where themarket is making successive Lower Highs (LH) and Lower Lows (LL). In a sideways trending market, prices will be contained within a pricerange until it breaks out. Consider this as a resting period. After resting,it usually continues in the direction of the overall trend.The chart below is an example of a market in an uptrend. Notice the“increasing peaks” or Higher Highs and the “increasing troughs” or HigherLows.30www.forextrendlinetrading.com
The chart below is an example of a market that is in a downtrend. Notice the“decreasing peaks” or Lower Highs and the “decreasing troughs” or LowerLows.The chart below is an example of a sideways or flat trending market.31www.forextrendlinetrading.com
When does an upward trend change to a downtrend and vice versa and how doI spot it?Uptrend changes to downtrend when the pattern of successive Higher Highsand Higher Lows is broken with a formation of a new Low that is lower than theprevious low. This is the beginning signal of a possible trend change.Downtrend changes to an Uptrend when the pattern of successive Lower Highs andLower Lows is broken with a formation of a new high, that is higher than the previoushigh. This is a signal that the trend may be changing to an uptrend.The chart below clearly illustrates the points made above and shows how anuptrend changes to a downtrend and vice versa. 32When a HL is broken, it gives the signal of a possible downtrendWhen a LH is broken, it gives the signal of a possible upward movewww.forextrendlinetrading.com
You must fully understand this concept because I believe it gives you theability to just glance at your chart and know if you are in an uptrend ordowntrend situation and also it gives you the ability to spot if a new trend hasjust started.If you are wondering “how does this information fit in with the trendline tradingstrategy?”You don’t need to be a rocket scientist to figure it out.there are 2 reasons forthis.Reason#1:I want to be able to get in a trade at the very beginning of a trend when thesignal is given that a trend change may be happeningReason#2:If I have been locking my profits and trailing stop my trade under higher lowsor lower highs, it signals my time to get out or even better, the market actuallytakes me out!And the very good example for Reason#1 is displayed in the chart below.First, a HL is intersected giving a possible downtrend signal. Second, pricegoes up to touch the downward trendline. Knowing already that a downwardtrend signal has been already given and now that a trendline setup ishappening, you should be confident to enter a short order.What happens next? The market falls!33www.forextrendlinetrading.com
Am I correct to say that if a trader entered a short trade as shown, would hehave entered a trade at almost the BEGINING of downtrend? Definitely!This example above shows how the information on “how trends change” whencombined with trendline trading strategy allows a trader to get in at almost thebeginning of a new trend!Always keep this at the back of your mind when you are analysing charts andwaiting for setups.In the chart below, notice that the Higher Low, HL, was intersected and priceplummeted. Later, a Lower Higher, LH is intersected, signifying an uptrendsignal. So this looks like a beginning of an uptrend happening right here.So now you can see the importance of understanding trend changes and ifyou can be able to spot them and use this information in conjunction withtrendline entries, it essentially allows you to jump in a trade at almost thebeginning of a new trend.34www.forextrendlinetrading.com
SHORT, MEDIUM AND LONG TERM TRENDS AND TRENDLINESWe can further break down trends into 3 types: The short term trendsShort term trends are found in timeframes anywhere from 1min up to30mins. The medium term trendsMedium term trends can be found in 1hr up to 4hr timeframes The Long term trendsLong term trends can be found on 4hr, daily up to the monthly.Based on the above, we can further classify trendlines into 3 types oftrendlines: Short term trendlines (1min up to 30mins) Medium term trendlines (1hr up to 4hrs) Long Term Trendlines (4hr up to Monthly)Long Term Trendlines have more significance overMedium Term Trendlines which have more significanceover the Short Term Trendlines.What this means is very simple.for example, a short term trend is down butthe medium term trend is up.so as this short term downward trendapproaches the level or zone of influence of the medium term trend providedby the upward trendline 2 things usually happen:#1: The short term trend continues to move down in violation or totaldisregard to the medium term trend and trendline which should haveacted as support.meaning the medium term trendline is intersectedand now becomes invalid. In this case, this may be the start of a newdownward medium term trend.#2: The short term trend bounces up from the medium term trendlineand obeys it.Let me ask you a question:If yo
If a candlestick just intersects but fails to close above/below a downward/upward trendline, then expect the trendline to be obeyed. #2: The length of the body of the candlestick (if it is long or short) that closed above the downward trendline and below the upward trendline. The longer the length of the
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