[Entry Point Commentary] How to trade using horizontal lines ~ Horizontal Line Part ③ ~ [Line Analysis Basic Course #3]
Nice to meet you! This is SAKU!
Previous article covered how to draw horizontal lines,their properties and roles, and this time we will focus on how to apply them to trading!How to apply them to trading, let’s take a closer look!
Learning about entries, take profits, and stops with horizontal lines forms the foundation of line analysis, so be sure to master them!
Trading using horizontal lines
Horizontal lines by themselves are not meaningful unless used properly.
Drawing them aimlessly only makes the chart messy.
So what’s the purpose of drawing them? They are drawn for trend identification and environment recognition, entry, stop, and take-profit decision making.
About trend identification, it has already been explained in theDow Theory article, so here we will look specifically at entries, stops, and take profits!
Taking profits with horizontal lines
Horizontal lines can be used for take-profit, especially when using stop orders.
You can place stop orders based on horizontal lines when price falls below or rises above them.
For example, when the price breaks below or above a recent high/low or an important low/high, you can set a stop at that horizontal line.
Taking profits with horizontal lines
You can also use horizontal lines as targets for take profit.
Another use is to place limit orders for take profits at the next higher horizontal line or at a swing low/swing high as a branching point.
Also, you can divide your position as you reach successive take-profit targets (first target, second target, etc.).
・Imaging take-profit and stop using horizontal lines
Setup examples using horizontal lines
Here we will introduce setup examples using horizontal lines.
Since take-profit is only a guideline,please manage your funds properly and tailor them to fit your situation.
① Entry at the range’s top or bottom
If a horizontal line is drawn at the range’s top or bottom,confirm that the line hasn’t been broken before entering. (It’s better to enter after “reacting” to the line rather than just touching it)
This is an entry aiming to ride the range by buying at support or selling at resistance within the range.
In this case, if the horizontal line breaks in the opposite direction of your bias, it’s prudent to cut losses.
Incidentally, Tokyo session tends to be quiet with little price movement, so this method might be effective when such movement is unlikely. In that case, be sure to set your stop as well!
② Entry on horizontal line break
When a horizontal line is breached, you can enter with the expectation that price will continue in the break’s direction.
This entry aims to draw stop orders outside the horizontal line into the breakout, seeking a continuation move.
In this case, a prudent stop is placed either when the line is breached again and returns inside (inside the line) or at the most recent high or low.
③ Entry on a return move after the line break
After the line break, a return move may occur.Return move may appear.
In such cases,this is a moment where buyers and sellers invert their struggle, so it’s a good entry opportunity.
In short, it’s an entry aiming for support-resistance flip (also called a roll reversal entry).
In this case too, a prudent stop is placed when the line is breached again and returns inside (inside the line) or at the most recent high or low.
Summary
Finally, let’s look at actual charts that summarize each setup pattern!
That’s all for taking profits and stops using horizontal lines, plus basic setup examples!
These are not just about memorizing entry patterns, but also about understanding what you are aiming for (breakout or line rebound, etc.) and the mindset driving the entry, so please keep that in mind!
Horizontal lines are among the basics of line analysis, and when combined with other methods they can be even more effective. So even if you aren’t a trader who uses line analysis, please learn how to use it!
If you want to learn line analysis from the basics and master higher-level, more reproducible trading, please check this out as well! ↓
MTF Multi-Timeframe Analysis Mastery
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Next article (special edition) is here ↓
【Special Edition】Real-trade Analysis of MTF Analysis【Practical Example of Multi-Timeframe Analysis】
Next article in the Line Analysis course is here ↓