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A Line to Determine the Universe: 3 Kinds of Trend Line Trading Methods

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Trend line is one of the most common methods of technical analysis. This method is actually very intuitive, but once you know how to use it, it can be a very powerful tool.
Trend lines are one of the most reliable signals in trading. In this article, I will share with you three powerful trend line strategies.
But first, there are two things you must pay attention to when drawing a trend line:
(1) The trend line must be confirmed by three points to be valid
Many investors like to confirm the trend after connecting through any two points, but only after the third point is reconfirmed, it is verified and effective.
(2) Do not penetrate the physical part of the K-line
When drawing a trend line, it is possible to cross the shadow part of the K line, but not to cross the solid part.

1. Test again after breakthrough

Retesting the trend line after a breakout is a very common strategy used by many traders.
The method is to wait for the price to break once a valid trend line is determined. Sometimes, after a breakthrough is formed, the price will quickly move away from the original trend.
However, if the price falls back near the trend line, then the retest of the trend line can usually be used as a high probability trading mode. You can make trading settings in a smaller K-line cycle.
The trend line can both act as a condition for triggering the entry and also help to set a stop loss. The stop loss is usually located on the other side of the trend line, as shown in the following figure, if the trend line is effectively broken, you should stop loss immediately.
The more connection points of the trend line, the more suitable the above strategy. In the example above, the trend line has at least 3 to 4 valid connection points. During the breakout period, market volatility increased, and prices continued to rise after hovering around the trend line for a period of time.
Aggressive traders can trade immediately after the price has stepped back on the trend line. More conservative traders can wait for the price to hit the trend line and rebound before choosing to enter the market.
There is no problem with the two ways of entering the market, and it depends entirely on the risk appetite of the trader.

2. Flag shape trend line destruction

Method 1 can be understood as reverse trading or early trend tracking, and a flag-shaped trend line breakthrough is usually a continuation of the original trend.
Before the formation of the flag shape, you can easily find the original trend, and then wait for the flag shape to sort out. Once the flag pattern is destroyed and restored to the original trend direction, the price can be set to fall below the trend line as an entry condition.
In the candlestick chart below, the price is in a very obvious downtrend before the formation of the flag shape. The initial downtrend is significantly stronger than the rebound, so the bullish flag pattern only shows weak buying power. The strength of the two trends will help you determine whether the trend line is likely to fall below.
In the example below, the downtrend is clearly stronger than the bullish flag, which means that the trend is more likely to continue to decline.
When trading flag patterns, you can also add a long-term moving average. For example, the 50-day moving average helps to identify long-term trends.
In the chart below, the 50-day moving average is down. When the price breaks the trend line, the 50-day moving average forms resistance. Therefore, the possibility of continuation of the downward trend is higher.

3. Trend line rebound

Trend line rebound is also a way of trading to follow the original trend.
In the chart below, the price rebounded from the trend line for the third consecutive time, confirming the validity of the trend line. Then, the price formed a horizontal resistance level near the trend rebound. Then, we can enter the market when the trend line rebounds and breaks through the resistance at that level.
In this strategy, the trader can place the stop loss below the trend line or place the stop loss below the horizontal resistance level.
Similarly, the setting of the two stop-loss levels depends on the trader's risk appetite.
Trend line rebound can also be used in multiple time frames. Once a long-term trend line is established (as shown in the figure below), traders can move to a smaller time period and use other techniques to assist trading.
In the following, we will observe two different time frames.
In the chart on the left, we see the position of the first rebound (first arrow). The candlestick pattern is quite chaotic, so effective trading signals cannot be obtained.
In the chart on the right, the K line forms a head and shoulders pattern, and there is another trend line as an aid. Then, we can enter the market after the neckline breaks.
Using multiple time frame methods can help traders find trading signals earlier and can also obtain a higher rate of return.
Trend lines are arguably one of the most powerful trading tools, and many trading masters also believe that they are more reliable than conventional horizontal support/resistance. What a trader has to do is to find the method that suits him best, and constantly consolidate his understanding of the trend line in the transaction.


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