Today our Olymp Trade Analysts will write about the difference between horizontal lines and trend lines, and will also talk a bit about the psychology of round numbers in trading. As you have already noticed, the main difference between horizontal line and trend line is the angle.
Differences Between The Lines
However, it is important to write one more time that a horizontal line has no angle. A trend line has an angle above 0-degree but below 90. And the vertical line has a 90-degree angle. Furthermore, a horizontal level can either be seen as a support line or a resistance line. This will help traders to identify the main parts where the formation or reverse in a trend can appear. With a careful analysis of the horizontal lines, traders can catch the correct timing to open a very profitable trade. Please, take a look at the picture made by Olymp Trade Analyst to help you to visualize the horizontal lines at our trading platform.
Keep in mind that horizontal levels can be used as the basis of trading strategies. As you can see, the 2 blue lines are horizontal lines. That can give us a good perception where the asset’s trading levels are. Also, pay attention to the breakout on the support line, giving a signal that a bearish trend has started. In the second picture made by Olymp Trade’s analyst, you can notice the MACD lines crossover. Likewise, it gave extra indication about the trend formation.
Let’s Talk About Trend Line
Now, let’s talk about trend lines. They are probably the most common form of technical analysis. But, if Olymp Trade’s Analyst askes you “how do you draw trend lines?” Can you explain it, in a simple way? Don’t worry, we are here to help you!
We will tell everything you need to know about how to draw trend lines properly. All you have to do is locate two major tops or bottoms and connect them. Take a look at the picture showing how to draw a trend line.
In the image, we can see a bullish trend. Therefore, traders are looking for buying opportunities. The best moment to open long positions occurs when the price drops down and comes close to the trend line and then moves upwards again. On the other hand, in a bearish trend, when traders want to sell, the best moments occur when the price comes close to the resistance line and moves downwards again. To complete your topic, here are some important tips, Olymp Trade’s analyst would like to give you about trend lines. It takes at least two tops or bottoms to draw a trend line. Like horizontal support and resistance lines, trend lines become stronger every time prices touch the line. Finally, the most important, it is to not force a trend line to fit on the chart, it should be made easily according to the price movement.
To conclude your article, let’s discuss some curiosity facts about round numbers in trading and psychology of traders. As humans, we tend to think in whole and round numbers, rather than on uneven random numbers. Let’s think about, you look at your watch and it shows 13:28. If someone asked you what time it is, would you say 13:28 or 13:30? Psychology shows that most of people would say 13:30 just to round the numbers. Taking the same psychology procedure in trading, most traders have a tendency to prefer rounded currency values to odd random values. In trading, rounded prices are commonly viewed as prices that have double zeroes at the end, for instance – 1.3400 or 1.5000. If you pay closely attention to price chart, you would find that resistance and support usually form near rounded prices levels. Please take a close look at the picture.
As you can see, the USDJPY started to suffer a reverse on trend, when the price was very close to 104.600, and the bullish trend lost its strength, when asset’s price was around 111.100. Know that you know more about support and resistance levels, we invite you to our platform, as Olymp Trade provides training materials that will allow you to become an expert in trading.