Trendline Trading Strategy (The Missing Knowledge That Makes it Work)

When it comes to trading with trend lines, there’s a lot of superstition that gets passed off as “knowledge” in the industry. There’s a lot of training that can keep you very busy drawing lines without actually increasing your winning trades. I’m going to introduce you to a way of thinking and a way of seeing the market that can make using trend lines far more meaningful and effective.

By more effective, what I mean is that, by discovering what’s true about the market you will be able to apply skills with trend line trading that significantly increase your winning trades.

Why Traders Use Trendlines

So the first thing to know that can help you increase your winning trades is that the idea of using trend lines arises from a trader’s natural desire to make an otherwise organic market appear to be more divided, more measured, more linear. Maybe it helps the trader feel like it’s more understandable with something to gauge this market by. And it makes the trader believe that the market is more mechanical.

Now this can actually prevent you from being able to see the most important aspects of reading the market, which is not linear and not mechanical, and is based on known recognized shapes instead. I’m going to show you how to combine both of these types of analysis to get the highest probability in trading that you can get. The most important breakthroughs that a trader can make, the really big “AHA!” moments are about how to look at the market and what it is that you see when you look at it. And that’s based on what you choose to focus on, and what you believe is true about the market. If you believe that the market is random and chaotic, when you look at a chart you will see a market that is random and chaotic. If you believe that the market is forming recognized shapes that it repeats, then you will begin to see those more and more.

If you believe that big banks are trying to steal your money when you’re trading, you probably will see something like that on your charts. It’s very common to look at the market and try to see mechanical rules that don’t really exist. Have you ever noticed that in trading, we can be trained and conditioned to focus on certain things, to use indicators and tools, and to place some kind of significance on those? There may not even be any significance to them.

For instance, if you open your charts and every time you open your charts you take some salt and throw it over your left shoulder, then you look at the charts and you believe that there’s a relationship between whether you’re going to see a buy or sell based on throwing that salt over your shoulder. And maybe the truth is, that there’s no connection whatsoever. But if you believe there is, you can see a connection and say,

“Oh! I swear every time I throw this salt over my shoulder, then the market does this and I enter a trade. Oh look! It’s good. That trade is good. Oh! That one didn’t work, but oh! This one’s good.”

You just keep on and on doing things that are completely irrelevant and coincidence, not related to anything, but thinking that there’s some relationship to that and your trade. Now watch and see if this is understood to be true.

If there were a lot of organic plants and they were allowed to just grow naturally they might all reach different levels of height with no pattern that could be defined linearly or geometrically.

Now a plant is organic but it produces leaves, flowers, and fruit that have specific shapes. Some of them are very geometric in nature. That’s why we see Fibonacci spirals inside of pine cones and so forth. They form identifiable new shapes. The shape of the leaf of an oak tree is very specific. And so is the shape of the leaf of a maple tree. Now the market does form very clear and specific types of patterns that can be seen on the chart without any reference to any line. These shapes can be seen without using support and resistance, supply and demand, or trend lines. But wait! Sometimes the market does form patterns that do conform to these lines, and are a little linear in shape as the price somehow mysteriously comes right back to these invisible lines.

Trend lines are these places where we draw in what would otherwise be invisible lines as the market does conform to in its otherwise organic patterns. So we don’t see organic plants that somehow send out their leaves and branches and stop at certain levels in a line. Plants are not normally inexplicably stopping at invisible lines. But the market does form lines. And if this is true we might be able to see that the market is not just entirely organic or that lines have no relevance at all, because they do.

Still the biggest problems that traders have is trying to force the market which is mostly organic, to be something that is mechanical. And also by thinking in terms of mechanical and digital logic especially in terms of mathematics and formulas which those are where we get indicators, many traders would love for there to be some mechanical quality, something about the market that is made out of lines. Something black and white something digital. Zeros and ones. Something that is like made out of stainless steel that’s guiding and directing the market and showing us where we should enter trades and where we should exit.

I have discovered that when traders open charts without having any kind of lines on the charts, they tend to feel a little bit uncomfortable. And this comes from anxiety and uncertainty. The first thing that they want to do is to divide up the chart with horizontal lines. These lines might be support and resistance, supply demand, or pivot point lines or some other type of lines. These lines are used for that purpose to divide up the chart to show some type of a barrier or reference that would tell you if the market goes this far it might turn. Or it might continue if the chart is completely open.

The trader feels like there’s nothing to gauge this on, and they don’t know how far the market is going to go, for how long in time, and for how far in price. They have nothing to really base that on. So a lot of trading is based on total guesswork.

Now the way to eliminate this excess anxiety is to learn to read the charts. To learn to read financial markets and then you will know how markets normally behave. And how we can read what’s happening in the market and be able to see from the past, here’s what the market is doing based on what we know to be true? This involves learning to read trends and corrections. Based on learning to recognize these known shapes, contrary to what a lot of traders believe, which is that you can’t actually identify turning points in the market, that’s the actual way that a person would be able to trade is to know how to recognize turning points.

So here is a trend trend has a classic recognizable shape. One person mentioned after seeing one of my videos, “Oh, but you have to have this extensive experience and intelligence and skill so we can’t see those.” That’s why what I’m showing you is how anyone can see this. Anyone can see it and then I actually showed in that previous video that someone was commenting on the exact shape over and over again so that there’s no way that you can’t see it.

So if you see this shape right here this is just like learning a letter of the English language, and there’s no way that any person can’t see it and recognize it. It has a meaning. What happens when this shape forms in the market? And what always happens at a certain point every time the shape forms? Now I can show you hundreds of examples of this almost exact shape over and over on all time frames in all currency pairs and there would be no way that any person can’t see it and recognize it. Just any normal person can see it and recognize it.

If that’s the case, then you have just taken the first step. If you can see somewhere on some chart this particular shape and you can say, “Yes! I know that shape and I know what it means. Then okay! You have taken the first step. And there may be more steps. What’s very important about this is that, in a trend there are only two lows in an uptrend or two highs in a downtrend. And it’s too steep and the trend line is not used. It’s completely not usable. If I drew a trend line on these two lows, the breaking of the trend line would be irrelevant. I could see an end of a trend but the end of the trend itself would not be related to the breaking of the trend line.

Once again, here is that almost exact shape. If you can just see just this one example, and you can see, “Oh wow! I recognize that shape!” Then you have taken the first step. But if i put a trend line on here that would not be used, a trend line is not used on a trend. Now I’m not suggesting that we stopped calling them “trend lines”. Maybe we could call them “correction lines” I thought about this before and that’s okay. It doesn’t matter what they’re called, as long as we understand that they’re not used on trends.

Now this issue is made worse by the fact that most of the trading experts and gurus who use support and resistance or supply and demand and trend lines don’t know the difference between a trend and a correction. And they look at things that aren’t trends and they call them trends. So before we go into the actual way of using trend lines in a valid trading strategy, let’s examine further what is the purpose of trend lines and how can they be used in trading.

Now once you really understand what a trend line is, what is the natural logical way to trade using trend lines? If you’ve seen any video so far on how to draw trend lines you are probably familiar with the main accepted ways of drawing trend lines. Often you will hear the experts who are mentors telling you that you need at least two highs and lows to draw a trendline. Have you ever tried to draw a trend line with less than two highs and lows?

Well I’ve noticed that a few of the mentors do agree with me, that in order for a trend line to even exist, there must be more than two. There has to be three. If you have any two highs and lows can be connected and that’s completely random. It has nothing to do with anything. Therefore, you have to have at least three highs and lows that line up in order for a trend line to be said to even exist. The funny thing is, that traders are attracted to the trend lines and are fascinated by them, but if there are three highs and lows that connect in one line, it’s actually unlikely that further highs and lows will also line up with that line. So then how is probability used in trading? You’re looking for a probable trade. What would that be based on? Any line that doesn’t have at least three highs and lows lined up with a line is just someone imagining that there’s a line.

Here are some principles that are needed in order for you to develop this skill and be able to use trend lines in your actual valid trading strategy.

Number 1. In normal market conditions, most price patterns are not forming trend lines. For many traders, if you look at their charts there are trend lines everywhere and most of them don’t exist. The market is organic and this attempt to force something to be there doesn’t really do anything that would help increase probability.

Number 2. If there are any trend lines that could be said to actually exist some trend line experts would say that there need to be at least two highs and lows connected in order for the trend line to exist. Try drawing a trend line where only one high or low touches the trend line. And yet, I’ve seen cases where there are less than two that are connected that are used in a trade and traders look at it in hindsight and say, “Oh, look! That’s a great trade!” Because there’s a trend line after it happened. And there’s still only two which is just random. Any two highs and lows can be connected. So after it turns and there’s only two. there is absolutely nothing about that that would tell a person. Not in hindsight.

Use a little common sense about this. The lines that we see or draw are subjective and flexible. Let’s not consider that in this organic market, there’s something there that is absolutely rigid like stainless steel. Be flexible and allow it to be moved and adjustable. There’s just no need to force the creation of trend lines. Learn to look at the market with no lines and be able to read it. Trend lines might form and if they do it should be natural and obvious.

When you draw a trend line draw it in in a flexible area where you can adjust it. Use common sense and pattern recognition to tell you how you would use this trend line for trading, as I’m going to show you more about in just a moment.

Now if the market is moving up, there’s no need to limit the amount that it can move up because the trend line just defines an area where it’s not going below. It can go up as much as it wants.

The trend line is just saying that it’s going up so a trend line in an uptrend does not go on top of price action. During a downtrend, it does not go below the price action. In an uptrend the price can go up as much as it wants. And in a downtrend, if we know that there’s a downtrend it can go down as much as it wants. If there seems to be some kind of a pattern where highs and lows are lining up on both sides that would be not just a trend line, but that would be a trend channel. In an uptrend a line that’s on top of the price action would be a channel line.

Notice also, that a lot of traders in general may really like to put those trend lines on the top in an uptrend. But really, there wound’t be any reason why that would be used in trading. The market is going up. What would the purpose of a line on the top? It could be places where you could take profit. The trend line on the top is broken what would that mean you would stay in a long?

Visual Criteria/Pattern Recognition

Now this next step, is the most important step to take this knowledge into a higher level of accuracy and effectiveness. And that is draw any trend line in the context of seeing and recognizing the pattern that is forming. If a trader begins to focus on charts or perform any kind of analysis on charts of the financial market, and is emphasizing trend lines or other lines such as support and resistance or supply and demand, and is using these lines as the main determining factor, there are more important and more significant visual criteria that could be missed.

High quality trades with high probability and desirable risk to reward. In order to even place a trade you should be able to at least estimate the risk to reward. And in order to estimate the risk to reward you would need to be able to see and understand what kind of a pattern is forming. If a correction is ending, where is it going next? So that you can estimate what your reward would be.

If traders have some kind of a target that they’re using to estimate their risk to reward, what would it be based on? If it’s not based on understanding what pattern is forming and understanding the likely conclusion to the pattern, and where it would likely be going. A lot of people are trading the market but most of them don’t know how to read the market and they don’t seem to know what kind of a pattern the market is likely forming. And most traders are not even focused on trying to know that. And yet, they may still be drawing a whole lot of trend lines and placing significance on those trend lines.

Often when we’re told and shown how to draw trend lines, and we adjust them so that we can get the highest number of touches of the trend line that’s all done after the fact. After a trend line has formed. And then what is the actual way that that would help you in making a trading decision? If you draw this trend line, you see that there are more touches of the trend line. Does that mean that we would be able to buy or sell if the trend line is broken or if it is respected again after having respected it before?

And even more importantly, is to be able to see and detect how much of what you may be seeing in the form of lines is random and irrelevant. Traders often force trendline relevance in many places where there’s no relevance at all creating all kinds all levels of superstition in trading behavior. So just remember that if there is a trend line and it has respected or touched the trend line multiple times, first thing to know is that the likelihood that it will continue to respect that trend line becomes less and less each time that it hits it. So therefore, when you’re looking at a trend line, just be clear about what would be the purpose of seeing that trend line in regard to how is it going to help you to make a trading decision.

One time hitting a trend line: there’s no trend line that exists. Two times hitting a trend line there’s still no trend line that exists. That’s random. Any two highs and lows can be connected and it can’t be proved that there’s any line yet until there are three times that it hits the trend line. And then at that point, it becomes more and more likely to either break the trend line or just ignore it entirely and then go back into a more organic non-linear type of behavior.

I recently saw a well-known trainer and mentor show how to draw a trend line and mention with a trend line, just like this, that the best place to enter based on that trend line is this point but he failed to mention that the trend line did not exist at that point. So it may or may not have been a good place to go short but it certainly wasn’t because of the trend line.

Now the inability for many traders to even use basic common sense can keep them focusing on useless things for many years. Like in this case, you draw a line from here to here and then you’re saying that this is a great place to go short but a line couldn’t have been drawn until after that point. So a line wouldn’t have anything to do with your going short there. After the market turn you can put a line there and you can enjoy having it on there, but it won’t have anything to do with why there was a trendline. And the fact that anyone would need to say this out loud is an indication of a total lack of common sense of many traders.

So if the market is going down and it breaks a trend line that you may have drawn, what would help you a lot more is to know that there is a trend. And know that there is a correction because that might actually have something to do with why there would be a trade. In a typical trend for wave five there may be a trend line that is broken and then right after it breaks it it will turn. Anyone who can recognize the basic shape of a trend would instantly know that it was going to do that. And yet, the people who are focused solely on trend lines, go along. The trend line’s broken or resistance is broken. And then in their minds they’re thinking, “Well you know, sometimes it works but sometimes it doesn’t.” That’s true. Sometimes anything would work sometimes not. But the percentage of the time when they work is much higher if you know where there is a trend and where there is a correction.

More and more superstitions give more and more reason to focus on things that are not relevant. Now if I connect all of these random highs and lows, every time there’s any two highs and lows, I connect them. And then I attribute some significance to the breaking of the trend lines that I drew. And I might say, “Okay. Now this trend line was broken and now the market is going up.” Basically, what I’m doing is is applying my own superstition. Believing that there’s some significance to the fact that a trend line was broken and that the market is going up. And those two things are not connected. They’re just coincidental.

In most of these cases, the reason that the market turned is because of an end of a correction. After that, if you happen to have drawn a trend line it will eventually be broken. But that is coincidental.

Okay. take a look at this example and what we’re doing here is we’re looking for possible trend lines in the context of the pattern that the market is making. And we have to be aware and know how to see patterns because if you’re able to see trends and corrections and you know what they look like and you have practiced this, then trend lines will actually have significance whenever they occur.

So in this example of the U.S. Dollar index, the unweighted version of the U.S. Dollar index, there’s a very significant trend line right here going down.

And then it begins to form a kind of a triangle shape and breaks the upper trend line comes back and retests it. As it continues to follow the lower trend line. And from then on, continue to go up.

Now those trend lines were used in the context of reading the overall market behavior pattern. So that we were able to see that the re-testing that trend line showed us with a number of other things that were happening at this time that the U.S. Dollar was making a long-term turning point on that day. Because of that I went short on the euro vs the dollar. Looking at that also in the context of seeing a bigger pattern on the daily. Also looking at the correlated pairs such as the euro going also even all the way up to the weekly we were able to see this as behaving like a wave five.

Now look at the thing. It’s so amazing! And when you look at all these things together, the patterns that the market is making on all different time frames, using it in conjunction with any trend lines that may have any significance, it can really enhance your ability to know what the market is doing. Not just so you could know what it’s doing, but to make wise profitable trading decisions.

Now here is an excellent example where there are some trend lines that were somewhat used to be able to see this known and recognized pattern. This pattern ended up allowing me to determine the very end of cryptocurrencies including Bitcoin and other cryptocurrencies. Right at the very hour that it was turning.

This was because of recognizing this known pattern on the two day time frame. So in this pattern, there are some trend lines that are put on the top and bottom of this incredibly perfect example of what we know as a one two three four five ending diagonal 5. An ending diagonal is a very distinct known phenomenon in which the waves of this ending diagonal subdivide into three wave patterns precisely just like clockwork.

If you have ever been through the process and the experience of seeing any kind of a long term ending diagonal, you will remember it the next time. The next time it forms again you will recognize it and be able to trade it. So most of you know that I sent out an alert in the very hour that crypto was turning, and said, “Here goes the turn on crypto!”

Most people had no idea what I was talking about. A few of them later on said. “Oh I guess it did turn.” But they don’t know why it turned. And in this case what about these trend lines? Were they used? They were just used to mark this pattern which I could already see. The breaking or not breaking of these trend lines didn’t really have anything to do with how it was traded. And the turning point was identified a long time before any trend line was broken. This is by the way, the total crypto cap which produces patterns that can’t be seen on the individual cryptocurrency charts like Bitcoin, Ethereum, Litecoin or Dogecoin. They have some patterns. And comparing correlated pairs is still very useful, but this total cap chart shows patterns that aren’t visible on the individual cryptocurrency charts.

So for those people who can see patterns, some people can’t seem to see them. If you can see them you’ll remember how useful it was right after the pandemic beginning here in march 2020. The Euro vs U.S. Dollar began moving into a known pattern. Realize that when a known pattern like this is forming we don’t necessarily know that it is forming this kind of pattern until AFTER it has formed it. But along the way, clues can be given. And these lines are not necessarily all that useful. Only somewhat for any trade that happened inside of this triangle. Or any trade that happened at the end of this triangle. The trend lines themselves weren’t really the reason for the trade. They’re just kind of an interesting guide that we can see to help us to understand what that is.

And just recently on Aussie and Kiwi pairs, all of them, they have been making this incredible distinct somewhat complicated pattern that I began thinking is an ABC correction in a downtrend. And the reason for that, is I can clearly see this downtrend right here. And showing the exact shape that trends often make over and over again. No matter how many times I show how obvious that is, many people will say “Well I don’t see that.” And they might think that there’s some special skill that they needed to have. But just as of yesterday, this pattern made an amazing bounce and turned at this trend line showing us the next piece of this pattern. Showing us that now the EUR/AUD is going up and all the Aussie pairs are going down. A trend line was somewhat significant in seeing this pattern right here.

Now I would love to show you more about the actual details about how these trend lines are used on a regular basis in daily trading. And if you experienced a breakthrough and would like to know more about what actually works in trading just go to our website at and you’ll see right here there is a free professional training course which i give out to people to help them to get started and learn what really works in trading so that they can avoid wasting so much time and money on things that don’t work. This course includes over 40 unique and exclusive videos that demonstrate how to trade the financial market.

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