subject: Trading Trend Lines With Indicators [print this page] Trend Lines are the most powerful technical analysis tools. They allow you to gauge the trends direction, identify potential reversal levels and enter trades with low risk and high reward. In this article, you will learn how to combine trend lines with indicator in your FOREX trading.
Trend lines are a powerful analysis tool - the way they present dynamic support and resistance areas is unmatched by most technical tools. However, when they are met with strong indicators to confirm trade entries, their profit potential can highly increase. We will now introduce an indicator that is useful for signaling entries with trend lines - the Stochastic Oscillator.
The Stochastic Oscillator is a good oscillator that produces buy and sell in FOREX and other markets, and presents them in an easy-to-understand manner. To combine it with trend lines, one can wait for confirmation from the Stochastic Oscillator to issue trades, when price is close to a trend line. For example: price is getting closer to a support trend line and suddenly retraces upwards - a sophisticated trader can wait for Stochastic Oscillator to confirm long entry, thus increasing hit rate and improving performance.
Another indicator is very useful at confirming trades in the Bollinger Bands indicator. The Bollinger Band is useful for determining whether price is at a support or resistance level - when the lower band serves as support level and the upper band serves as a dynamic resistance level. A very useful trading method is to confirm each trade with a touch of Bollinger Band. For long trades, require that price is near the lower Bollinger Band and for Short trades requires that price is near the upper band. This improves the quality of the trades as it requires several confirmations for a support or resistance level.
Make sure not to confirm trend line trades with normal trend-following indicators - it usually does not improve the quality of trading, but reduce it greatly. Trades that are based on trend lines are contrarian at nature - they attempt to catch market bottoms and tops and to catch the turning points of trends. Trend-following indicators do exactly the opposite: they join existing trends to make profits from riding the trend. When one tries to confirm trend line signals with trend-following indicators, one filters most of the profitable signals and usually enter very late, with big stop loss which leads to greater risk and smaller reward.
