There is a fairly popular saying in Forex. Perhaps you have even heard it.

“The Trend is Your Friend.”

The reasoning behind the statement is that if you open a position in the direction of a trend, your rate of success will increase. However, for some traders, seeing the trend is not always that easy. Many times traders will ask me, “What indicator should I be using to know which way the trend is going?”

While there are dozens upon dozens of indicators with fancy names and complex mathematical equations, I believe finding the trend is a lot easier than you think. You simply need to just look at the chart. I recommend looking at 4HR charts or higher to verify the current trend in the market.

Above is a daily chart of GBPCHF. Watching price move across the chart, it is easy to see that the trend was initially moving upwards, dipped a bit, went up, and then dropped.

Of course, it is always easy to tell the direction of a price after it has already moved. But what tool could we use to tell us when price is going to change direction? It is as simple as a straight line, more specifically, a trend-line.

Above is the same chart as below. Except this time I drew a trend-line across the significant lows in the upward trend. There is really no wrong way to draw a trend-line. However, it is more of an art than it is a science. Let’s have an in depth look at how price reacted around the trend-line that was drawn.

Once the trend-line is drawn, the best way to see if it is a valid trend-line is if price respects it. When price hits the trend-line, it will do one of two things. Bounce back from it, or break through it.

Watch the area where price connected with the trend-line for the last time. Price dropped to it and couldn’t break it initially. The next day price shot away from it. At this point I would have poised myself to make a long entry if price would have continued past the high of that candle. However, it did not move upward but rather shot back down to the trend-line. This time the candle managed to close below the trend-line. This is significant as it is a strong signal that price is reversing and a new trend is beginning.

The very next candle did something extremely important. It shot back up to the trend-line and failed to break through it. Not only did it fail, but also it shot right back down. Price had respected the trend-line. And you can see what happened after that. It continued to drop as the days went on.

So skip all the fancy indicators. Trading does not have to be very complicated, and as shown all one truly needs is to know how to draw a straight line. The good news is that most brokers provide charts that assist with drawing trend-lines. It is a simple as connecting two dots and the trend-line is automatically drawn for you.

Always remember…

“The Trend is Your Friend.”

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