Indicator automatically identifies points and it draws support and resistance trend lines on them. There are two type of calculation lines.
Author: Serhii Ivanenko
How to Exit While Trading with Trendlines
When we place our trades based on trendlines, we are placing them based
on support and resistance levels. We are thinking the price will bounce
off a trendline like it did in the past. I propose we use the same logic
when setting our stops and limits.
In the example above, it’s easy to see the sell entry that was given to
us based on the bearish trendline. We entered right at the trendline
looking for a bounce back down, but where do we want to exit? When do we
call it quits if the trade goes against us? Where do we place our
profit target? Let’s take a look.
Setting Stops Beyond Support/Resistance
We need to look at placing our stop somewhere above this trendline. If
the resistance is broken through, we were wrong on the trade and should
accept the loss quickly. It’s possible that price could return back to
profitable territory after breaking this resistance, but we cannot rely
on being lucky. We can only trade based on what we see.
I like to set my stop 5-25 pips from the closest support/resistance
level depending on the time frame I am trading. The smaller the time
frame of the chart, the tighter I will place my stops. On this trade, I
set my stop 5-6 pips away from my entry since that was beyond the
resistance line as well as the previous swing high (Bounce #2).
Remember that when we set our Stop loss, this is also setting our
monetary risk on the trade. So we also need to consider our trade side
in respect to our Stop loss distance.
Setting Limits Within Support/Resistance
Now that our stop is set, we need to focus on our profit target. For our limit placement, we have two objectives:
And the reason we want our limit to be placed within the closest
support/resistance level (by at least 5 pips) is for the exact same
rationale we used to open this trade to begin with. We know prices have a
tendency to bounce off price levels they have bounced off of before, so
we want to make sure that no support/resistance is in between our entry
and our limit level. In the example below you can see I placed my limit
5 pips above the swing low (potential support). This gives price a
clear path to a profitable trade.
Trendline Strategy Complete
This trendline strategy is one that can be used universally across all
currency pairs and time frames so it is definitely a worthwhile style of
trading to learn. The logic behind the entry and exit rules is also
something that can be tailored to other types of strategies as well.