The Trendline Trading Strategy is a  forex price action trading system that is designed to trade the price bounce off the trendlines.

You will notice on your charts that price does two things when it comes to a trendline:

1. it bounces off it which means it obeys the trendline or
2. it breaks it…and when it breaks it, you can use the trendline break forex trading strategy to trade it.

This strategy is about how trade when prices bounce off the trendline.

In order for you to use the trendline trading system, you need to know how to draw a valid or proper trendline.

 

HOW TO DRAW TRENDLINE

You need a minimum of two lower swing high peaks to draw a downward trendline (to show market in a downtrend) and two higher swing lows to draw an upward trendine (to show market in an uptrend) like the chart show below.

When price come to the trendine and touch it on the 3rd, 4th, 5th peak or lows etc…that’s when you buy or sell.

For more information on how to draw a trendline, check this out:how to draw a trendlines the right way in 2 simple steps.

Timeframes: Any

Currency Pairs: Any

Indicators: No forex indicators are required but you should know your reversal candlesticks patterns, as they are very helpful in giving you signals to buy or sell when price touches the trendlines.

 

BUYING RULES

1. Draw an upward trendline connecting a minimum of 2 higher lows (or higher swing lows)
2. Wait for price to come come and touch the trendline at some stage down the future
3. Place a buy stop order 2-5 pips above the high of the candlestick that touches the trendline
4. Place your stop loss 2-5 pips below the low of that candlestick
5. Place your profit targets  on previous significant lower swing highs (or peaks) that you see on the chart or aim for risk:reward of 1:3

SELLING RULES

1. Draw a downward trendline connecting a minimum of 2 lower highs (or lower  swing highs)
2. Wait for price to come come and touch the trendline at some stage down the future
3. Place a sell stop order 2-5 pips below the low of the candlestick that touches the trendline
4. Place your stop loss 2-5 pips above the high of that candlestick
5. Place your profit targets  on previous significant higher swing lows (troughs) that you see on the chart.

TRADE MANAGEMENT

Here are some trade management techniques which you can use:

• lock profits by trail stopping it by moving your stop loss and placing it behind swing high or lows so there is less chance of you getting stopped out prematurely if you plan to ride out the trend.
• move stop loss to break even if price moves by the amount risked.
• consider closing half of your position if price moves by twice the amount risked and let the other to run or to hit your take profit target.

 

DISADVANTAGES OF THE TRENDLINE TRADING FOREX TRADING STRATEGY

All forex trading strategies have weaknesses and the trendline trading strategy is no exception:

• price can break and not obey the trendline.
• sometimes, price will just come within a few pips of the trendline and not really touch it and move away.
• sometimes, price tricks by breaking the trendline only to reverse later and obey the trendline.

So you should be aware that such things can happen and expect them.

ADVANTAGES OF THE TRENDLINE TRADING STRATEGY

• the risk to reward ratio of the trendline trading strategy is really great.
• its based on price action.
• if the setup is good, you can sell at the very top and buy at the very bottom of the price swing whilst keeping a very tight stop loss which really also has a very less chance of getting stopped out prematurely.

USE REVERSAL CANDLESTICKS WITH THE TRENDLINE TRADING STRATEGY

A better way to trade the trendline trading strategy is to use reversal candlesticks as your trade entry confirmation.

What do I mean by that?

Well, when you see price heading up to a falling (downward) trendline, look for bearish reversal candlesticks like these as price touches the trendlines to sell:

 

If price falls down and touches an upward trendline, look for bullish reversal candlesticks for buy entry confirmation:

The use of reversal candlesticks like above really enhances your trade entry and makes sure you are on the right side of the market when making a trade because of the price action signals given by the reversal candlesticks.

Click Here: Free Forex Trading Signals

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