Trendline Trading Strategy

The trendline trading strategy is a price action trading strategy where you need to first:

  • identify the highs and lows of price
  • and use the highs of price to draw downward trendlines
  • and use the lows to draw upward trendline.

What you need is a minimum of 2 highs or lows and draw a trendline. As soon as price heads to the trendline, you either buy or sell depending on the trendline drawn.

 

Suitable Timeframes to Use The Trendline Trading Strategy?

You can use it on anytime frame.

But I suggest that you try to use 1hr timefame and above.

 

Any Forex Indicators Required to Trade With The Trendline Trading Strategy?

No, there’s no need to any forex indicator. This trading system is good as it is.

 

What Currency Pairs In Forex Are Suitable For The Trendline Trading Strategy?

Any currency pair is suitable. What you would like to see is those currency pairs that have really good upswing and downswing characteristics in trending market.

Why?

Because this will allow you to draw proper trendlines and trade when price comes and hits those trendlines.

 

Trendline Trading Setup (SEll) Example

On this 4hr chart of AUDUSD currency pair below, you will notice that a downward trendline was drawn based on 2 previous “high” points of price.

As soon as price came back up to hit the trendline, a sell trade was initiated.

Then again, after a while, the price rose up again and another sell trade was initiated.

Notice also that the take profit targets are placed on the previous swing lows.

What about a buy setup?

Well, for a buy setup, you do the exact opposite of the sell setup seen above, like this:

Where To Place Your Stop Loss?

You do have a couple of options where you can place your stop loss:

  • place it 20-40 pips above the trendline
  • or f you use reversal candlesticks to get into a trade, then place your stop loss at least 10-20 pips above the high or the bearish reversal candlestick (for a sell trade) and place your stop loss 10-20 pips below the low of the bullish reversal candlestick for a buy trade.

Advantages Of The Trendline Trading System

  • great risk to reward ratio.
  • pretty easy trading system to grasp even for beginner forex traders once you know how to draw a proper trendline.
  • a trendline gives structure to price where you have the ability to watch that structure form and take advantage of it.

Disadvantages Of The Trendline Trading System

  • trendlines get broken…its is not a line drawn in concrete. That is just the nature of price in forex trading.
  • sometimes, price will spike past the trendline and hit your stop loss and then head in the direction you were hoping for.