Add Indices Trend Line on Stock Indexes Chart
Sometimes support and resistances are formed diagonally in a similar way like a staircase. This forms a indices trend which is a sustained movement in one direction either upwards or downwards.
A indices trend line depicts the points of support and resistance for the indices price, depending on the direction of the stock indexes trading market. For an upward moving market it will shows the points of support and for a downward moving market it will show the areas of resistance and they are mainly used by many investors to determine these resistance and support levels.
Indices Trend line is a straight line that connects two or more stock indexes price points and then extends into the future to act as a level of support or resistance. There are two types: upward and downward. It is an aspect of stock indexes trading technical analysis that uses line studies to try and predict where the next move will head to. A indices trader must know how to draw and interpret signals generated by this tool.
The basis of this analysis is based upon the idea that markets move in trends. They are used to show three things.
- The general direction - up or down.
- The strength of the current move- and
- Where future support and resistance will be likely located
If lines forms in a certain direction then market usually moves in that direction for a period of time until a time when it is broken.
Plotting these on a stock indices chart shows the general indices trend of the stock indexes trading market which can either be upward or downward.
Below is an example of how to draw these on charts
Tutorial: How to Draw and Trade Upward Move
Tutorial: How to Draw and Trade Downward Move
The MT4 software provides charting tools for drawing these on stock indices charts. To draw them onto a stock indexes trading chart, investors can use the tool provided on the MT4 software that is shown below.
To draw on this on a stock indices chart just click the drawing tool above on the MT4 technical analysis software and select point A where you want to start drawing and then point B where you want the it to touch. You can also right click on the trend-line and on the properties option select the option to extend its ray by ticking the "ray check box", if you do not want to extend it, then uncheck this option in your indices trading platform. You can also change other properties such as color and width on this property popup window of the properties. You can download MT4 software and learn technical analysis with it.
The indices trend is your friend. Is a popular saying among investors because you should never go against it. This is the most reliable method to trade Indices because once stock indices prices start to move in one direction they can move in that particular direction for quite some time - therefore using this method presents opportunity to make profits from the stock indexes trading market.
Principles of How to Draw
Use candlestick indices charts
- The points used to draw are along the lows of the stock indexes price bars in a rising market. An upward bullish move is defined by higher highs and higher lows.
- The points used to draw are along the highs of the stock indexes price bars in a falling market. A downward bullish move is defined by lower highs and lower lows.
- The points used to draw are extremes points - the high or the low indices price. These extremes are important because a close beyond the extreme tells investors the indices trend of the indices trading instrument might be changing. This is an entry or an exit signal.
- The more often a line is hit but not broken, the more powerful its signal.
There are two main ways of trading this indices trading setup:
- The Bounce
- The Break
Technical Analysis Methods
The bounce is a continuation signal where stock indexes price bounces off this line to continue moving in the same direction. In a downward move, the stock indexes trading market will bounce downwards after hitting this level which is the resistance level. In an upward move, the stock indexes trading market will bounce upwards after hitting this level which is the support level.
The break is a reversal stock indices signal where the stock indexes trading market goes through the line and starts moving in the opposite direction. When an up indices trend is broken then the sentiment of the stock indexes trading market reverses and becomes bearish and when a down indices trend is broken then the sentiment reverses and becomes bullish.
For very strong trends, after this break signal, the stock indexes price will consolidate for some time before moving in the opposite direction. For short term trends then this break signal will mean stock indexes price may reverse immediately.
In stock indexes trading technical analysis, both the bounce and the breaks that are used in technical analysis charts are based upon these levels being support and resistance.
Entry, Exit and Setting stops:
This method used to determine good entry and exit points, protective stops are placed just below them. The bounce is a low-risk entry method used by stock indexes traders to place entry trades after stock indexes price has retraced. Trades are setup along these levels and a stop loss placed just above or below.
The indices trend line break is a crucial indicator of possible Indices reversal. When a the its broken the stock indexes price starts move in the opposite direction. This provides an early exit signal for investors to exit their open trades and take profits. When there a penetration of these levels, it is a signal that the stock indexes price can start moving in the opposite direction.
Unlike other technical analysis indicators there is no formula used to calculate it, this formation is just drawn between two chart points.