Do Trendlines Work in Forex Trading?

“The trend is your friend” Have you heard that saying before? If you’ve been trading the forex market for more than 15 mins you should have. My favorite part is the often forgotten second verse: “The trend is your friend until the bend at the end!” For those of you that know me, you’ll know I’m a huge fan of trading in the direction of market strength. And one of the easiest ways to identify market strength is to use trend lines in forex trading. So, to answer your question. Yes! Trendlines work in forex trading and knowing how to draw the most reliable trend lines could be a key to success in your trading journey. They’re remarkably accurate and one of the most useful technical analysis methods I’ve found to identify an entry and exit point for a trade. 

As a technical trader, I find them most accurate on the 1hour and daily charts, however, you can use them on pretty much any timeframe price chart down to the 5-minute chart. 

Why Do Trend Lines Work? 

Trendlines are easily identified and programmable (for those using an EA or algorithm). As a result, many traders use them and they become self-fulfilling. It is a common form of identifying trend direction and a great method to find support levels and resistance lines.

In the chart above, I’ve highlighted a recent bearish downward trend line on the AUDUSD here for you guys to see how predictable it can be. Each time the price approaches the red line, the market prices of the currency push further down. 

Now imagine thousands of forex traders around the globe making this same observation. What are they doing every time price approaches the line? Selling (of course), which then pushes the market price down again, making new lower lows. 

As you can see from this example, these trends don’t always have a precise level. Often, you’ll see price bounce before it hits the trend line, or push through slightly before falling back into the long-term trend. As a result, trend lines should only be one weapon in your arsenal, don’t rely on them solely. It would, therefore, be best to integrate trend lines forex with other technical analysis indicators such as support and resistance levels, moving averages, RSI, Bollinger Bands, etc.

How to Effectively Draw Trend Lines in Forex Trading?

First, to draw a trend line in an upward trend line, two higher lows must be connected by a horizontal support line. For a downward trend, two lower highs must be connected by a horizontal resistance line.

A few other questions I’m often asked about trend lines: 

• Can trend lines curve? 

I’ve observed other educators (not on our site!) drawing free hand on their charts like this: 

Unless it’s for creative expression, don’t do this. These levels mean nothing. 

• Can a bullish market also have a bearish trendline? 

You’re essentially asking if you can buy when the market is dropping, a bit like this: 

If you were to sell around this red line, you’d be trading against the direction of the overall trend. 

Bad idea! 

This is also what’s known as counter-trend trading, and not something I advise traders to do. There’s a significant risk in this method, unless you use risk management tools like stop loss and risk-reward ratio.

• How do you know when the current trend has changed? 

Great question! As I said, the trend is your friend until the bend at the end. Predicting when the bend will happen is incredibly difficult, so when it does happen you need to be ready to cut your trade. If you picked up the trend early enough, you’ll have done very well up until the trend reversal and should still exit the overall position profitably. 

Nonetheless, as a thumb rule – any break above or below the trend line indicates the end of the trend. In this case, the current trend might have changed, though it is best to identify at least two points of real above or below the trend line.

If you’d like to learn more about how I use trend lines in my trading please join me inside the forex trading room during the UK session. I stream live 2-3 times per day and show you where the current trading opportunities are live. 

You’ll also see me drawing trend lines throughout the streams! I hope to see you in there. 

Andrew Lockwood