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There are no Holy Grails or Silver Bullets in trading. However, there are methods that do constantly make more profitable trades than not. If you’ve read any of my publications, you’ll know that I’m not a huge fan of manual trading. With that said, there are a few methods that some successful traders use. One of these tools are called trendlines.
This tool alone will not work. They need to be used with other indicators. When a group of signs come together, you can visually see that it’s time to make a trade or to exit a trade.
The Trendline Pivot Point Method
Before we begin, you need to have a basic understanding of how trendlines are drawn. Here’s a brief overview.
When a currency pair trends up or down, it makes peaks and valleys. It never goes in a completely straight line. These peaks and valleys made by price fluctuations are where you draw your trendlines. When the trend is down, you draw your trendline on the peaks and on the valleys if it’s trending up.
This method requires you to draw trendlines on two different charts for one currency pair. One will be drawn on the 15 minute and one on the 1 hour chart.
15 Minute Chart
Look to see if there is a currency pair that has a clear trend either up or down. If you find one that is trending down, find the last two peaks in prices. Make a trendline using these two points. If it’s trending up, use the last two valley low points.
60 Minute Chart
Now you need to do the same on the 60 minute chart as you just did on the 15 minute chart. Drawing trendlines on the recent lows or the recent highs depending on which way the currency pair is trending.
Now, draw pivot points on the 15 minute charts. This is where you will be pinpointing your trade entry.
Let’s say that the EUR/USD was trending down. You see price break through the trendline on the 1 hour chart. Now you watch the 15 minute chart. Price punches up and through the trendline. It then goes through a pivot point that is no more than 5 Pips away from the trendline break. Now you enter a trade to buy. If price was trending up, it’s very similar. You wait until the trendlines on the 60 minute and 15 minute charts are broken and price also punches through a pivot point.
The most important part is to determine the trends. Don’t try to force it. For this strategy to work, you need to have some nice, easy to see trends on both charts.
These trades don’t happen all the time. You may find only a few a week. But when you do, you can capture 20 Pips. The way to maximize your profit is to add more lots. I would also use trailing stop loss orders on half of the lots in case you catch a nice long price movement.
As with any Forex trading tool, you must be very patient and very cautious. Don’t ever try to force a trade to happen. Either the setup is there or it’s not. Looks for obvious trade setups and never deviate from this.
These simple trendlines and pivot points together with trading the trend can make you some nice profits. These Forex trading tools may make the difference between success and failure as a trader.