Day Trading Trend Lines – 5 Trend Line Trading Rules
To day trade trend lines profitably I follow a few simple rules. While there are many rules out there, these are but a few that should make any trend line forex trading strategy more robust when applied properly and accompanied by sound money management.
1.) Only trade the 3-5th bounce of a given trend line, before bounce #3 the trend line is not established, and after bounce number #5 off a trend line the momentum in the market usually begins to die. The main point here is no direction in this market is sustainable forever, and while you may be able to profitably take a day trade off bounce #6 and beyond, your odds of success decrease dramatically.
2.) Trade trend lines that are “gently sloping”. If the trend line is near 45 degrees, the odds of it holding are less than a trend line of only 20 degrees. Rarely does the market continue in one direction without letup at a steep angle. When there is a steep drop or rise in price the market very often quickly reverses thus voiding any steep trend line and therefore should be avoided. The fact is it takes extreme buying or selling pressure to cause the market to enter a steep move, and steep trend lines even for a central bank are unsustainable for extended periods of time.
3.) Have an entry plan when and/or if the price reaches a given trend line. Simply entering when the price reaches the trend line is an option, and coupled with good money management could be profitable. Another option is to have an additional variable or requirement to signal an entry. One often used in the live trading room is discussed in the article entitled Forex Entry Signals – When To Enter.
4.) Only take a setup during active times of the day. During these active times such as market opens/closes trend lines will be respected with a higher frequency, and thus tend to be more profitable over the course of time. Additionally these active times produce the largest moves and thus potentially can 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 highest odds of having a successful trade only take a trend line bounce in the direction of the overall trend. This ensures that even if the trend line breaks you still have the overall underlying trend in your favor. As you begin to be more comfortable with this trade strategy and thus more profitable, then and only then should you start to look for trades against the overall direction of the market.
When you day trade with a plan your success rate increases dramatically over simply entering when it “looks good”. Following these 5 simple rules to effectively day trade trend lines will bolster any trading method that takes advantage of frequently occurring intra-day trend lines. If you would like more info feel free to visit our forex training course and members forum.