Trading Proverb #9, Trend Lines

Trading Proverb #9. Trend lines are the only common denominator.

A man is trading in Moscow, a woman in Paris, a man in Rio, a man in San Diego, a woman in Tokyo, and a man in Singapore. They are all trading the same currency. Each has their own version of an edge. It is 20 minutes after the London Open. They are all looking at the 1 Hour chart and suddenly price moves up, and they all enter at the same time. Despite their differences, they all saw the same trend line break to the upside.

No matter what else you manipulate on a chart to try to edge out your competition, the lines drawn between highs and lows are the same lines for everyone. Sure, broker candles form differently from broker to broker, but overall, they still have highs and lows.

If you have read through my blog, you know that I am not a position trader. I do not make a trade and then sit on it for days, weeks, or months, like you would consider a stock investor to do. Why would I? I love to trade Forex because it takes way too long to profit in the Stock Market by comparison. So, if you want to try to trade like me, I would recommend using an automatic trend line that views shorter high/low action and even provides profit targets.

There are many automatic trend lines. I have tried many of them too. Some are quite fancy and show you multiple trend lines, others are more designed to show the profit targets. Still others are plain Jane. You can also draw them yourself. For me, since I trade tight to current market activity I use the trend line indicator I have attached. This one will show the trend line break by painting a circle on the trend line. If price breaks the line, but a circle does not appear, most of the time the break is a head fake. Once you get the good break though, it projects the possible range of the break. Most of the time it is nearly accurate, but sometimes the break is more powerful than the tool calculates. Once it senses the trend line is break is finished, it will reset to the new values automatically. Normally the new trend line holds. In a powerful move, the price will normally go to the other trend line, retrace, and push through for a new break. It is similar to a double top or double bottom.

In other words, it is a bit more than a simple trend line, though what happens after a trend line break is only alerts to possibilities. No offense to anyone who has known me for years, but like I always say...it is just an alert. Think of it as entertaining. Occasionally it is right, occasionally it is wrong. It simply means look at your design to see if you need to take action. I make pictures that draw themselves. I have set alerts in places to tell me to pay attention for a second. They are not necessarily valid signals. Still, without them, it requires too much attention, therefore too much emotion, therefore too many mistakes.

The TD Point and Line Auto indicator is a trend line that works VERY well. Try it out on a 1M chart so you can see its productivity quickly and become used to it.

The best part about having this trend line tool is that I can shuffle through charts when things don't look right, or when price slows down, and find the time frame holding up the wagon train in seconds. You can assume that nothing is going to move again until the trend line on that time frame is broken. That is mostly true. Over time the candles compress between the lines to form what is called a flag, or pennant, or triangle. The value of that information is not only do you know your next entry, but you can also patiently sit out of the market while the game is played out. No need to frustrate yourself by being caught in the middle of it. That is priceless.

At one time one of my friends had developed a multi time frame trend line for us, but it had some bugs and there were some special instructions about how to load it in mt4. I don't remember exactly how to do it. But, if anyone has an mtf trend line indicator that works, I am certainly interested in checking it out. I mean, can you imagine seeing the trend line of the 5M, 30M, and 4Hr chart all from the same chart? Of course I can use my modified PSAR, but I like the lines better. Hmm, I know there is a line alert tool. It is a line you can manually draw that will alert you if price touches it. I suppose this is a work around, but...it is not automatic


My design goal is always to be able to see pertinent information concerning higher time frames without using the pertinent chart. Since the trend line is the only tool that is constant among all traders, I think it is the best tool to have on your chart.

You can read more about trend lines from Tom Strignano's books. Besides trend lines, he can also show you Fibonacci techniques like you have never seen. Even knowing all he has shared with me though, it is not my preference. However, money talks...so his method is worthy.