A good trading signal plays a very important role in the profitability of trading. The precision of these signals often determines the profit space of the trade, and even relates to the survival of the trader in the market. As one of the most powerful signal tools in trading, the trend line is considered by many successful traders to be more reliable than conventional horizontal support/resistance.
Renowned in the financial world, Rayner Teo is a Singaporean trader with more than a decade of trading experience. He graduated from the University of London and has served as a senior trading analyst at financial institutions. In addition, he owns his own trading website with over 300,000 followers and receives 100,000 daily visits. Recently, Teo shared three powerful trend line strategies on how to accurately grasp trading signals.
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1. Trend Line Breakout Before and After Pattern Comparison Signal
In trading, first determine an effective trend line. It is important to note that when drawing a trend line, at least three points should be connected, and it must be a verified and effective trend line.
The trend line must be confirmed by three points to be effective.
For example, in reverse trading or early trend tracking, if the trend line of the flag pattern forms a breakout, it indicates that the future development trend will continue on the original basis. Before the flag pattern is formed, the original trend is easy to identify, and it is only necessary to wait for the flag to be organized. Once the flag pattern is broken and returns to the original trend direction, it indicates that the price has broken through the trend line and can be taken as an entry condition by default.
As shown in the K-line chart below, the price was in a very obvious downtrend before the flag pattern was formed. The initial downtrend was obviously stronger than the rebound strength, so the bullish flag pattern only shows a weaker buying force. The strength of these two trends is an important reference value for traders to judge the development of the trend line.
The downward trend in the picture is obviously stronger than the bullish flag pattern, which means that the possibility of the trend continuing to decline is higher. When trading the flag pattern, you can also add a long-term moving average. For example, the 50-day moving average helps to identify the long-term trend.
2. Trend Line Breakout and Retest SignalSometimes after a breakthrough, the price quickly moves away from the original trend. If the price falls back to the vicinity of the trend line, traders can use the retest of the trend line as a high-probability trading pattern.
Trend lines can serve as a trigger for entry and also help to set stop-losses. Stop-losses are usually placed on the other side of the trend line and can be set for trades in a smaller candlestick cycle. As shown in the figure below, if the trend line is effectively broken downward, a stop-loss should be immediately implemented.
The example in the figure above shows that the more connection points a trend line has, the more applicable the above strategy is. During the breakout period, market volatility increases, and the price hovers near the trend line for a while before continuing to rise.
Aggressive traders can enter the trade immediately after the price retraces to the trend line. Conservative traders can wait until the price touches the trend line and rebounds before choosing to enter.
III. Resistance signal after the trend line rebound
The rebound of the trend line is also one of the most commonly used entry methods for trend traders. In the figure below, the price rebounds from the trend line for the third consecutive time, confirming the effectiveness of the trend line. Then, the price forms a horizontal resistance near the trend rebound. Traders can consider the signal of the trend line rebound and the breakthrough of this horizontal resistance as the best entry point.
In this strategy, according to the trader's risk preference, the stop-loss can be set below the trend line or below the horizontal resistance.
The trend line rebound can use a multi-timeframe approach. Once a long-term trend line is established, as shown in the figure below, traders can move to a smaller time frame, which allows them to detect trading signals earlier and thus achieve a higher return rate. In the following text, we will observe two different time frames.Translate the following passage into English:
In the chart on the left, the position of the first rebound (the first arrow). The candlestick pattern is quite chaotic, so it is not possible to obtain an effective trading signal. However, in the chart on the right, the candlestick has formed a head and shoulders pattern, and, with the support of another trendline, traders can set an entry after the neckline is broken.
In summary, there are various opportunities and risks in trading. To effectively avoid risks and obtain greater profits, it is important to grasp the timing of entry. As a trader, it is not difficult to find and verify trading signals, but to use them reasonably and skillfully, it requires a long time of practice and exploration by the trader.
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