How to Use Trend Lines for Trading in the Forex Market?
Now that you’ve learned some basics about trend lines, it’s time to apply these simple yet highly effective technical analysis tools to your trading. In this tutorial, we strive to make the content easy to understand, so we’ve categorized the possible market behaviors when price tests support or resistance levels into two scenarios: bounce and breakout, which will guide our trading strategies.
Bounce
A common mistake made by retail forex traders is placing orders directly at support or resistance levels and waiting for their trades to materialize. While this approach may work occasionally, it assumes that the price will hold at these levels without breaking through.
You might wonder, “Why can’t I just place a limit order right on the trend line? I’m sure it’s the best price.”
When trading bounces, we look for confirmation that support or resistance will hold. Instead of simply buying or selling at the trend line, we wait for the price to bounce first before entering.
This approach helps avoid situations where the price suddenly surges and breaks through support or resistance. As experience shows, trying to catch a falling knife often leads to painful losses.
Breakout
In an ideal world, support and resistance levels would always hold. In a perfect trading scenario, every time price touches a major support or resistance level, we could enter or exit at the right moment and reap huge profits. However, the reality is that these levels often break.
Thus, relying solely on bounce trading isn’t enough. You must also know how to act when support or resistance is breached.
There are two trading approaches for breakouts: aggressive and conservative.
Aggressive Trading Method
The simplest way to trade a breakout is to sell or buy when price convincingly breaks through a support or resistance zone. Note the keyword “convincingly”—only when the breakout is clear do we have a valid reason to enter.
After the breakout, we want to see a clean, decisive move—like a martial artist cleanly splitting a brick with one hand.
Conservative Trading Method
Imagine this scenario: You expect EUR/USD to bounce after testing a support level, so you go long. However, price soon breaks below support, and your account starts losing money.
Now, do you...
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Accept the loss and close the trade?
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Hold on, hoping price will recover?
If you chose the second option, you’ll easily grasp the essence of conservative breakout trading.
Remember, whenever you close a trade, your new position is the opposite of your original one. For example, closing a EUR/USD long at breakeven means you’re effectively shorting EUR/USD with the same position size.
If there’s enough selling pressure near the broken support level, price may reverse and start falling again. This is why broken support often turns into new resistance.
However, trading this way requires patience. Instead of entering immediately after the breakout, wait for price to retest the broken level and show rejection before entering.
A Note for Traders:
This doesn’t always happen. Retests of broken support/resistance aren’t guaranteed. Sometimes, price moves relentlessly in one direction, leaving you behind. That’s why it’s crucial to always use stop-loss orders—never hold onto hope indefinitely.
