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Trend Lines- Enormous Profits Small Risk
This particular technique requires a little practice and it is something that is well worth looking out for. I call it roofing and flooring. It is best done using a large time scale like a weekly or monthly chart and then lowering the time scale for entry.
It works like this. First bring up a weekly chart of the market you are following. We are only looking at two bars, any two bars which, we shall call bar 1 and bar 2. You then draw a trend line connecting the bottom of bar 1 and bar 2. From there you extend the trend line into the future (the week coming) and that shall be know as bar 3.
The reverse of this is true for a down trend. Draw a trend line along the highs of bar 1 and bar 2. Extend the line one week forward to find an entry level. The trend line in this case was around 123.00 and the actual high of bar 3 was 123.19. A stop could have been placed at around 123.40 or you could have dropped down to an intraday chart to look for an entry. The actual close of bar 3 in this example was 120.24 if you had entered at 123.00 you would have made 276 pips (Approximately $2295).
If you drop down your time frame you can wait for price to hit the trend line on bar 3 and when it starts to move in your direction jump on board. In an uptrend once you are in you can place your stop below the low of bar 3 and in a down trend you can place your stop above the high of bar 3. See chart below.
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