Forex Trendline Strategy
In the previous forex class, we both learned the basics of technical analysis, such as support and resistance, trendlines, and channels.
Based on the basics of analysis that have been studied previously, you will now learn several strategies that can be used to seize market opportunities.
Before we continue, remember that basic trendlines and channels are also support and resistance.
During a downtrend, the trendline acts as resistance. On the other hand, during an uptrend, the trendline acts as support.
Basically, there are two strategies that you can apply based on support and resistance. The first is called "bounce trading," and the second is called "breakout trading."
Using the Bounce Trading Method
The Bounce Trading Strategy
This trading method takes advantage of price bounces when the price has reached support or resistance and bounces from there. The illustration below will explain what is meant by this bounce trading.
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| Trendline strategy forex, TradingView Chart |
Because you need some kind of confirmation that the support or resistance has not been broken. It could be that price movements up or down are so sharp and fast that they directly break through support or resistance.
Well, this reflection is a kind of sign that the support or resistance level is still strong. At a more advanced level of discussion, you will also learn what kind of confirmations you can recognize.
Explanation of Breakout Trading Strategy
Trading Strategy for Breakouts
In the world of trading, support and resistance will not last forever. At some point, these levels will definitely break. At times like that, you can still try to find opportunities with a strategy called breakout trading, which is one hundred percent different from bounce trading.
If in bounce trading you wait for a bounce to buy or sell, in a breakout strategy you take advantage of a break of support and resistance, assuming that a break of support or resistance tends to be followed by a rally.
The illustration below illustrates a breakout trading strategy by taking advantage of a break in support or resistance.
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| a trendline breakout trading strategy, TradigFiew Chart |
Yep, confirmation is needed to take action.
A support or resistance is considered a break if it meets at least one of the following two things.
First, if you use a candlestick chart, the body of the candlestick must cross or break the support or resistance line.
Regarding this volume, we will read it at another time.
Well, that was an aggressive breakout trading strategy. But there are traders who choose to wait for further confirmation.
This group of non-aggressive traders applies a rather conservative breakout strategy. To make it easier, let's call it a conservative breakout strategy.
So, how does this conservative strategy work?
This conservative breakout strategy actually combines breakout and bounce trading strategies.
Here's the story:
When the breakout is confirmed, you do not immediately take a buy or sell position like an aggressive breakout strategy, but you wait for a pullback to occur back to the support or resistance area.
After a pullback occurs, you are waiting for another bounce to occur from the support or resistance level. Only then do you make a buy or sell transaction.
So that you can more easily understand the explanation above, we have prepared an illustration to illustrate this strategy.
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| aggressive and conservative breakout strategies. Tradingview Chart |
Both aggressive and conservative breakout strategies have their own advantages and disadvantages.
If you use an aggressive breakout strategy, the advantage you get is that you can enter immediately and won't miss the moment.
But, of course, this strategy has its drawbacks. For example, you may have sold immediately when the support broke, but it turns out that the price rose again and was back above the support.
Well, the conservative strategy has an edge in that regard.
Using this strategy, your chances of getting stuck are lower because you wait for the pullback first and look for bounce confirmation.
However, it should also be noted that pullbacks do not always occur after a breakout.
Here is the weakness of the conservative strategy: you will potentially lose the opportunity to enter because the price has already run away.
Every trader has a different style. You can decide whether you will be aggressive or conservative.
For those of you who are patient, a conservative strategy may be suitable for you to apply. However, if you are agile and like a challenge, it may be more appropriate to use an aggressive strategy.
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