Anyone who’s been trading for any time at all has heard the phrase “The trend is your friend,” but what exactly is a trend, and how do we find them and use them?
A trend is nothing more than a series of higher highs and higher lows (or lower highs/lows for a downward trend). The following picture is a GBP/JPY daily chart. I’ve marked the trend with two purple lines, and I’ve circled the significant high/low points of the trend. Notice how the high points I’ve circled in blue keep getting lower and lower, and how the low points circled in red also keep getting lower?
This is also a good time to learn a little Forex terminology. In case you don’t already know, those two purple lines are known individually as “trendlines,” and together the two lines form what’s known as a “trend channel.” The circled highs and lows are called “swing highs” and “swing lows.”
With your new-found knowledge of S&R zones how do you think we might use trendlines to trade? We use them just like S&R and trade reversals off of them. In fact, it would be very accurate to describe trendlines as diagonal S&R zones.