Forex trading systems that are based around following a trend are likely to be both simple and effective. It is well known in the currency trading world that the trend is your best friend.

It is very easy to create trend lines on any forex chart, but most people prefer to use candlestick charts for this because the candlesticks are such a clear visual signal. When trend lines are forming, you can use them as a signal to buy or sell the currency pair.

The first step in using trend lines for forex trading systems is to determine whether the market is rising, falling or is stable within certain parameters. Of course there will always be fluctuations, but at certain times you will see clear patterns.

1. If the price is rising

If the price is going up, first draw a straight line through the highest highs on the chart. This line will be sloping upward. Then draw another line through the lowest lows on the forex chart. If this line is also going upward and is approximately parallel to the first, you have an upward trend.

You can then use these two lines as support and resistance lines. This means that you can assume that while the trend continues, the price will remain in the area between these two lines. Therefore, any time that the price hits the top line you could sell, on the assumption that it will fall back. In a sense this strategy means going against the trend, but you would only hold that position for a short time.

Alternatively, any time that the price hits the bottom line you could buy, on the assumption that it will soon rise again. In this case you are following the trend which is often a better strategy. However, you must keep in mind that there will at some point be a true reversal and you may be caught out by this.

2. If the price is falling

If the price is going down, you can follow a similar method to the previous system. The lines you draw will be going downward but you would still buy when the price hits the lower line and sell when it hits the upper line.

3. If the price is stable

If the price is really not going anywhere, then the lines that you draw through the highest highs and the lowest lows will either be horizontal and parallel to each other, or they will be converging (drawing closer together) or diverging (drawing apart). If they are horizontal, you could use them as support and resistance lines in the same way. If they are diverging, it is not a good time to trade. Wait for a trend to form.

If the lines are converging, they may indicate a breakout. In this case you should not treat the lines as support and resistance lines but wait for the price to go beyond either one of them and continue in that direction. So if the price breaks above the upper line you would buy, expecting it to continue in that direction for a while. Equally, if the price breaks above the lower line, you would sell.

Like all forex strategies, these are not guaranteed. There is always a risk of trades going against you, so you should check your signals against other indicators and always use stop losses. Always test your forex strategies in a demo account before going live. These steps will help you to develop simple but successful forex trading systems.

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Filed under: Forex Charts And Indicators

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