Lesson 3: Drawing Trend Lines

By drawing trend lines, you will be able to pick high probability trade. You will be able to identify support and resistance level, set take profit (TP) level, and calculate risk:reward ratio. With trend lines plotted on your chart, you will be able to see the long term and short term trends.

As we are using the 4 Hour time frame as our main chart to trade, trend lines will be drawn on weekly, daily and 4 hour time frame charts to identify the long term and short term trends.

To make the process of drawing the trend lines much easier, shrink your chart by pull/drag the bottom area (Where the dates are) to the left. By doing so, it will allow you to see the whole picture more clearly.

Weekly graph

Firstly, we start off by drawing trend lines on weekly time frame. 1 trend line at the top as resistance and 1 at the bottom as support. These two trend lines act as the direction of the major trend. Next, draw an intermediate line between the 2 major lines. Connect at least 3 points to call it an effective trend line.

Daily graph

Switch over to the daily time frame, you will 2 thick red trend lines on the chart. They are the trend lines you've drawn on the weekly chart. Now, draw another intermediate trend line connecting as many points as possible between those lines.

4 Hour graph

With these trend lines on your 4 Hour chart, you can easily set effective take profit points and calculate risk:reward ratio. The idea of drawing the trend lines, is to identify the support and resistance level close to the price to determine high probability trades. For instance, look at the 4 hour purple trend line labeled 5, price crossed the 89 SMA and pulled back to the 21 SMA before touching the Daily+4 hour trend line (labeled 4). Then, the price crossed 21 SMA from above, and pulled back to 21 SMA again. At this point, we are anticipating that the price will move down to the trend line at point C. Thus, we will be looking for trend continuation pattern on the MACd and set out take profit point at point C.