Hi, please am newbie in forex I kindly need knowledge on how to draw a Sand R trend lines
Thanks so much am on it
Unfortunately, most internet-based instruction concerning price action is deficient at best.
In an up-trend, you want to connect each major higher-low with a trendline and each major lower high in a downtrend. That’s assuming you know what constitutes a higher low and lower high. Check out the chart below.
Price created it’s first major higher low, confirmed by the strong breakout of the tight trading range. This would be a higher low major trend reversal setup.
The first pullback after a strong breakout is often 50% of the spike (as is the case here). The new higher low is confirmed by another strong breakout from the pullback (what I call “reversing the reversal”). At this point, you would draw a trend line from the first higher low to the second higher low, giving you visual reference to the angle. Generally the steeper the angle the stronger and faster the trend. Also, steeper trends often reverse earlier than gentler trends. But that is a discussion for another time.
This is where things get a bit tricky, especially for the beginner. My first entry was a buy-stop order just above the first higher low. The first trendline was intact all the way up to that huge buy climax at the top. Once we had confirmation of a reversal, a lot of us took profit, fueling even more selling. But if you notice, the previous higher low was not breached. According to basic Dow theory, that would have had to happen in order to confirm a major trend reversal. Since instead we got another higher low, the bulls re-entered, drawing a new trend line with a steeper angle and widening the original.
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Nice post again although that’s not STRICTLY correct (as I’m sure you know i.e. Dow theory also comprises the comparing of other info. e.g. Dow Transports to validate and confirm).
Be that as it may:
Nice of you to have gone to all of this trouble to aid the OP.
Sorry but a person gets real tired of repeating the same stuff over and over or seeing the same stuff over and over. And not to mention the fact that there must be a hundred threads on here detailing exactly how to draw support and resistance trend lines let’s face it.
You’re a better and far nicer person than I have become!!! LOL!!!
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Even; you can spend more times on BabyPips School to learn Forex! Happy learning!
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I agree. There are a lot of tools I fail to utilize. In fact you would be surprised at just how spotty my knowledge is still. Take for example, Elliott Wave Theory. Just forget trying to teach me that stuff. I’m a total rock when it comes to EW. This should be an encouragement for beginning traders. Even people like me can make a living at it. It just takes a massive amount of patience, with the charts and with myself.
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Again. Very nice post.
Me too I’m afraid re: Elliot Waves (and any other waves for that matter) do my head in.
My advice though (not particularly directed at you though): don’t get too bogged down with this stuff. As an example: Dow Theory will give you a long term overview and insight into the markets but I personally don’t believe that it’s something on which to base short term trading decisions on. And as a matter of fact: just how applicable it is nowadays has also been a topic of debate for a while given that the major components of the Dow Jones Industrial Average are actually no longer made up of Industrials so just how applicable divergence is between the Dow and the Dow Transports has been called into question. This being said: it’s been liberally referred to on Bloomberg of late interestingly enough.
After all said and done: that’s all that counts let’s face it. And nice to hear. Keep at it. And I wish you very well.
Actually, there are several approaches for drawing trendlines, so this issue is quite contraversal. The main points of attention are the following:
- One can draw support/resistance levels using either high/low of candles, or only close prices. Some traders say that close price is much more important, but from the other point of view candlestick shadows could be huge, so it would be wrong to ignore them.
- It is still controversal whether it is necessary to get cofirmation by volume, There is an opinion that it is important to check the volume and draw support/resistance levels only using candles or consolidations confirmed by relativey large volume since they deemed as more important to other market participants. To my mind, this approach is wrong, since even levels without huge volume could be important.
It is also necessary to mention that trendlines in fact are also support and resistance levels, just of other, diagonal type. That is why it is possible to apply the same principles while drawing and analysing trendlines.
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@J_C_Anderson, In a brief Wat of ur opinion what option would u recommend as the best practice u could advice a beginner like me to focus on and adop as a standard for drawing support and resistance line as beginner till I become matured like u. Thanks
You can start with the basic drawing type - using each high or low of the candle. It will look something like that:
So, you need just to connect highest or lowes points with the trendline despite their volume. If the candle has a shadow, it would be better to draw the line using that shadow too (not only close price). To my mind, such trendlines are more accurate.
Another important point is that sometimes it is important to draw another trendline. For example, price could once breach the trendline but then return back. Some of the traders ignore such movements, but in my opinion it would be better to draw another trendline that would include new high or low. At the same time, if the price breaches the trendline and forms consolidation above or below it, this could be the first sign of confirmed trendline breaching. In such case, futher price movement should not exceed current high or low.
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So what is the best way to draw S/R lines, wick-to-wick or body-to-body? I have seen claims for both ways and also claims of whatever your comfortable with which is the way I prefer. What I do is convert to a line chart (or simply add a one (1) period EMA) on the chart and draw trendlines from top/top or bottom/bottom and then switch back to my candlesticks (my preference). It works well for me. But again, to each his/her own …
I draw zones, not lines.
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In truth, it doesn’t really matter.
The only reason I use trend lines is when I am confused about the direction price is going, or the shape of any pattern.
Take a look at the chart below. Is price reversing?
Now I’m going to quickly throw some lines up for reference, not really caring if anything is perfect. I ill tell you that computers recognize channels better if they are parallel. It doesn’t matter if they are perfect. Any wicks that stick out over the line is called an overshoot. Any candle that doesn’t touch the line is an undershoot. These undershoot and overshoot areas are created by computers that are not in perfect agreement where the trend/channel lines are supposed top be drawn. That’s okay, as long as we are close and put our stop loss orders above/below the last swing point.
So now we can clearly see that the trend line has been broken giving us another point of confluence to go long (the first point was the HL created in the channel).
In the chart below, can you spot the three nested triangles in this complex double-topping pattern?
Let me make it easier for you…
By using line charts, you get the wicks out of the way, since these are based strictly on the close of each hour. In this case , we see that price broke out of 2 consolidation structures before forming another one. Third time was a charm as the third breakout yielded a strong move to the downside.