com All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the permission of Kelvin Lee. Copyright © 2010 by Kelvin Lee --------------------------------------------------------------------------------------------------------------------------- Disclaimer No income guarantees or promises of any type are being made. Your results will vary due to circumstances that are outside of our control.
While utmost care has been taken to endure that all information provided has been tested up to the time of writing, all websites, products and services mentioned are provided, as is, without warranty of any kind. The author does not warrant, guarantee or make any representations about the use or results of the use of the websites, product, services or resources in this book. The reader acknowledges that the content provided here is for informational purposes and that risk of business failure is based on the strategies and plans devised and executed by the readers themselves. The entire risk as to the results and performance of these websites, product and services are assumed by the reader.
The reader thus agrees that the author and publisher are not responsible for the success or failure of readers’ business decisions relating to any information provided. This covers all information in this book, and no further information provided within this book or through correspondence with the author or publisher on any platform is intended to supersede this disclaimer Copyright © Kelvin Lee 2 ForexTrendLineStrategy.com There is a free lifetime update for this book whenever there is a new revision of this book. Please spend 5 minutes of your time to sign up for this update here. Copyright © Kelvin Lee 3 ForexTrendLineStrategy.com Introduction Trend line forms the foundation to a good technical analysis.
The purpose of drawing trend line is to show you areas of support and resistance where the bulls and bears fought with each other. With this information, you can better decide whether you should buy or sell a currency pair. Being a technical trader, you must definitely know how to draw a proper trend line that can help you in your trading. Similarly drawing an incorrect trend line can prove to be a disaster for your trading as well.
Some of you may find trend line drawing too basic to learn but it is usually things that appear to be basic which cause you your hard earn money. Most people thought that trend line is all about connecting various swing highs or swing lows. In fact, there are a lot of ways you can make use of trend line in your trading and this is exactly what you are going to learn in this book. It took me years of trading and learning to know there are so many ways you can trade with trend lines and you are going to have this valuable information within the next few hours of reading.
First of all let me ask you the following questions: Have you ever experienced this before? • You enter a trade after a trend line break but the price suddenly reverses after a few candles Copyright © Kelvin Lee 4 ForexTrendLineStrategy.com • You enter a trade after seeing trend line break but the price did not move to your target profit and then reverse to take back all your profit If you ever have any one of the above experiences, it is usually due to your problem with drawing trend lines and your ability to do proper price projection. In this book, I will be going through with you the following Section 1: Trend Line Analysis • How To Draw Conventional Trend Line • Rules For Drawing Conventional Trend Lines • Types of Conventional Trend Lines • How To Draw Tom Demark Trend Line • How To Determine The Strength of Your Trend Line • How To Verify a Valid Trend Line Break • How To Do Proper Price Projection Copyright © Kelvin Lee 5 ForexTrendLineStrategy.com Section 2: Trend Line Trading System • How To Trade Using Multiple Trend Lines • How To Trade Support Turn Resistance Section 3: Trading Examples • EUR/USD Currency Pair • GBP/USD Currency Pair With the following knowledge, you will be able to draw the best trend line and then trade profitably with it. Copyright © Kelvin Lee 6 ForexTrendLineStrategy.com Section 1 Trend Line Analysis Copyright © Kelvin Lee 7 ForexTrendLineStrategy.1 What are Trend Lines? A trend line represents a supply and demand among traders. According to Wikipedia, A trend line is a bounding line for the price movement of a security.
A support trend line is drawn by connecting several swing lows and a resistance trend line is drawn by connecting several swing highs. Example of Support Trend Line: A resistance trend line is drawn by connecting several swing highs Example of Resistance Trend Line: Copyright © Kelvin Lee 8 ForexTrendLineStrategy.com So first of all, let me go through with you how to locate a swing high and swing low before we start to draw a trend line. Swing high is basically an N-shaped formation with several candles on the left and right side of a single high candle. Swing low is basically a V-shaped formation with several candles on the left and right side of a single low candle.
Copyright © Kelvin Lee 9 ForexTrendLineStrategy.com However we are not interested in all swing highs and lows when drawing a trend line, we are only looking out for those that have more weightage as this will produce trend line that is more significant. Below is the level of weightage for each formation Once you have identified all the medium to big swing highs or lows, you can start to plot your trend line. There are 2 types of trend lines you can draw and we will be going through all of them in this book. They are - Conventional Trend Line - Tom Demark Trend Line You need to have a good knowledge of these 2 different trend line drawing methods as you will need to combine them to have a better trading experience.
Copyright © Kelvin Lee 10 ForexTrendLineStrategy.1 Conventional Trend Line A conventional trend line is also known as a common sense trend line. The conventional trend line consists of 3 types of lines mainly - Long Term Trend Line (BLACK) The long term trend line is drawn over a longer period of time. Due to the higher weightage of each swing high or low, the long term trend line will usually have more power than the medium and short term trend line. This means that the price will most probably bounce off the long term trend line for the first few times before it can break through it.
- Medium Term Trend Line (BLUE) Copyright © Kelvin Lee 11 ForexTrendLineStrategy.com The medium term trend line is simply part of the long term trend line. From the last point of contact of the long term trend line with the price, you can draw a medium term trend line. As compared with the long term trend line, the medium term trend line passes through lesser candles and thus has lesser weightage. - Short Term Trend Line (RED) The short term trend line is the most recent trend line and you will be using it to trade most of the time.
Some of you may think that the long term trend line must be drawn from a higher time frame and short term trend line is drawn on a lower time frame. In fact, all the long to short term trend lines are drawn on the same chart. Copyright © Kelvin Lee 12 ForexTrendLineStrategy.com The difference between the various types of trend lines lies in the number of candlesticks or period that the line passes through. For long term trend line, it has to be drawn over a longer period of time while the short term trend line is usually drawn over a shorter period of time.
As for the period to draw, there is no specific guideline you should follow. Rules for Conventional Trend Line ̈ The Best Trend Line Is One That Connects The Most Swing Highs or Lows ̈ Once The Support Trend Line Is Broken, It Will Turn Into Resistance Trend Line ̈ Once The Resistance Trend Line Is Broken, It Will Turn Into Support Trend Line Steps to Drawing Your 3 Types of Conventional Trend Line Step 1: Shrink your selected time frame to a smaller size until you see the start of your current trend. If the currency pair you are trading is currently in an up trend, you simply have to shrink your chart until you can see the beginning of the up trend. Example: (EURJPY 15 Minutes Chart) Copyright © Kelvin Lee 13 ForexTrendLineStrategy.com Step 2: If you are in a down trend, look for major swing highs and if you are in an up trend, you should look at the major swing lows.
(To draw a strong trend line, you need to have at least 3 points of contacts which means that you need at least 3 swing highs or lows) Step 3: Connect at least 3 swing highs or swing lows to form your long term trend line Copyright © Kelvin Lee 14 ForexTrendLineStrategy.com Step 4: Expand your selected time frame and look for major swing high or low after the last point of contact for the long term trend line. Step 5: Connect those swing highs and lows that you have found in step 4 and you will get your medium term trend line Copyright © Kelvin Lee 15 ForexTrendLineStrategy.com Step 6: Look at your recent candlesticks and draw the necessary trend line and that will be your short term trend line Copyright © Kelvin Lee 16 ForexTrendLineStrategy.2 Tom DemarkTM Trend Line The Tom DemarkTM trend line is in fact created by a professional trader name Tom Demark. He has written a book to talk about it and you can find it at the last page of this book. When he is trading, he used to communicate with his partner through the phone and every time when they talk about trend line; he finds it very hard for them to be talking about the same trend line as the conventional trend line is very subjective.
Every trader can draw different conventional trend line as everyone of us sees thing in a different way. Therefore he tries to study ways to draw trend line that does not depend on the individual point of view and he came out with Tom DemarkTM (TD) trend line. It is a very dynamic trend line as it will change with the market movement and this gives the trader the most recent line to trade with. Compared to the conventional trend lines, this TDTM trend line is more systematic and not based on common sense or personal judgement.
Steps to Drawing Your TDTM Trend Line: Step 1: Pick 2 most recent swing highs or lows (For TDTM trend line, the swing high and low needs not be major. It is simply the most recent swing highs and lows) Copyright © Kelvin Lee 17 ForexTrendLineStrategy.com Step 2: Connect them and you will have your most recent TDTM trend line As more new candles are formed, the TDTM trend line will change and you have to constantly follow up to get the best result. More Examples on TDTM Trend Line Copyright © Kelvin Lee 18 ForexTrendLineStrategy.com New Swing Low With the Tom DemarkTM trend line, it’s time to combine it with the Conventional trend line to get better result. The TDTM trend line is only used to draw the short term trend line but the way to draw the medium and long term ones stay the same.
Do note that the TDTM trend line will constantly change as new swing high or low is being formed.