Dynamic Trendlines
Scaling In for Extra Profits
Often when the market starts trending in a new direction it can be difficult to determine the full extent of the rally and know when to add positions to existing ones or enter new positions during the current rally.
By using Dynamic Trend lines to help us find entry points we can take full advantage of the rally. By dynamic I mean placing new trend lines as the market moves.
On the first GBP/USD 15 min chart I have drawn in the channel lines for the down run and will be looking for either a continuation of the down move or a breakout of the channel to go long.
As we can see the market continued down until it hit the lower support (blue line) established earlier and bounced before stalling temporarily at the top channel resistance line.
Once price broke through the channel resistance we had our first entry long at 1.9833 with our stop at 1.9800 below the channel line and about 10 pips below the last low.
The market rallied and formed a new high at 1.9966 before retracing. At this point I added Fibonacci retracements expecting price to drop to at least the .382 retracement before continuing the rally. As we can see price stalled round the 23.6 retracement area and the question was "where to enter should the rally continue?" and "how high will the market go?"
At this point we are able to add an up trend line (which becomes our support) and draw a channel line running parallel with the last high in the market. The top of the new channel becomes our possible target on the upside in conjunction with the Fib 1.618 target.
Often when the market starts trending in a new direction it can be difficult to determine the full extent of the rally and know when to add positions to existing ones or enter new positions during the current rally.
By using Dynamic Trend lines to help us find entry points we can take full advantage of the rally. By dynamic I mean placing new trend lines as the market moves.
On the first GBP/USD 15 min chart I have drawn in the channel lines for the down run and will be looking for either a continuation of the down move or a breakout of the channel to go long.
As we can see the market continued down until it hit the lower support (blue line) established earlier and bounced before stalling temporarily at the top channel resistance line.
Once price broke through the channel resistance we had our first entry long at 1.9833 with our stop at 1.9800 below the channel line and about 10 pips below the last low.
The market rallied and formed a new high at 1.9966 before retracing. At this point I added Fibonacci retracements expecting price to drop to at least the .382 retracement before continuing the rally. As we can see price stalled round the 23.6 retracement area and the question was "where to enter should the rally continue?" and "how high will the market go?"
At this point we are able to add an up trend line (which becomes our support) and draw a channel line running parallel with the last high in the market. The top of the new channel becomes our possible target on the upside in conjunction with the Fib 1.618 target.
Click to enlarge.
On this next chart I have added my first Dynamic trend line which runs parallel to the top (blue) channel line. (For Meta trader users double click the Previous channel line and then drag it across to the new high it will give a new line at the identical angle to the first.)
Once price breaks above this new resistance we can scale in with a second lot or a new entry into the market at 1.9936 with our target still at the fib 1.1618 or the top of the channel line.
By repeating this process after each retracement we wind up with multiple entries in the market. As we can see the Dynamic Trend lines gave us seven entries into the market with the first giving us a return of 327 pips. Our stop loss would be the last low beneath each Dynamic Trend line.
Obviously we need to adhere to good money management principals and not overexpose ourselves in the market. I have not added the final profits but I am certain it would have more than doubled the original 327 pips.
The lower red channel line is the reversal point should price break below this support. Each new retracement and Dynamic Trend Line also becomes the new stop loss point for previous orders.Summary
On this next chart I have added my first Dynamic trend line which runs parallel to the top (blue) channel line. (For Meta trader users double click the Previous channel line and then drag it across to the new high it will give a new line at the identical angle to the first.)
Once price breaks above this new resistance we can scale in with a second lot or a new entry into the market at 1.9936 with our target still at the fib 1.1618 or the top of the channel line.
By repeating this process after each retracement we wind up with multiple entries in the market. As we can see the Dynamic Trend lines gave us seven entries into the market with the first giving us a return of 327 pips. Our stop loss would be the last low beneath each Dynamic Trend line.
Obviously we need to adhere to good money management principals and not overexpose ourselves in the market. I have not added the final profits but I am certain it would have more than doubled the original 327 pips.
The lower red channel line is the reversal point should price break below this support. Each new retracement and Dynamic Trend Line also becomes the new stop loss point for previous orders.Summary
- Establish the original break out point.
- Wait for a retracement to draw in the initial Dynamic Trend Line.
- Scale in a second order
- Place stops beneath the Dynamic Trend line and last low.
- Repeat the process until the target is reached or the market takes you out on stop.
Tags: Trend Lines and Channels
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