[Entry Point Commentary] How to trade using horizontal lines ~ Horizontal Line Part ③ ~ [Line Analysis Basic Course #3]
Hello! 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 in trading as we dive into it!
Learning about entries, take-profit, and stop-loss using horizontal lines forms the foundation of line analysis, so make sure you master it!
Trading using horizontal lines
Horizontal lines alone don’t have meaning.
Drawing them aimlessly only makes the chart messy.
Then what are they for? They are drawn for environmental recognition such as trend judgment, entries, stop-loss, and take-profit decisions.They are used for trend assessment and other context, as well as deciding entries, stop-loss, and take-profit..
Regarding trend judgment,Dow Theory article has already explained it, so here we will look specifically at entries, stop-loss, and take-profit!
Stopping loss using horizontal lines
Horizontal lines can be used for stop-loss, especially with stop orders in mind.
If the price moves below or above a horizontal line, you can place a stop-loss order based on that line.
For example, if a line drawn at recent highs/lows or breakout points is breached, place a stop-loss accordingly.
Take-profit using horizontal lines
You can also use horizontal lines as targets for take-profit.
One can place limit orders at the next higher horizontal line or at pullback lows/return highs as take-profit references.
Additionally, you can split your position and take profits as you reach multiple take-profit targets such as first take-profit, second take-profit, and so on.
・Take-profit and stop-loss image using horizontal lines
Setup examples using horizontal lines
Here we introduce setup examples using horizontal lines.
Stop-loss is only a guideline, manage your capital carefully and adapt it to what suits you best.
① Entry at the range upper or lower boundary
If a horizontal line is drawn at the range upper or lower boundary, confirm that the line has not been broken and then you can enter. (Entry isn’t just touching the line; it’s better to wait for a reaction to the line)
This is an entry aiming to move within the range by targeting support (buying) or resistance (selling).
In this case, if the line breaks in the opposite direction, it’s prudent to stop-loss.
By the way, Tokyo session often has calmer price action and a sideways market, so this method may be effective when such movement isn’t expected. In that case, make sure to set a stop-loss clearly!
② Entry on horizontal line break
When the horizontal line is breached, you can enter expecting a continuation in the break direction.
This is an entry that aims to capture a continuation by pulling stop-loss orders outside the line into the move.
In this case, it’s safest to place stop-loss either when the line breaks again (returns inside the line) or near the most recent high or low.
③ Entry on return move after line break
After breaking the horizontal line, a return move can occur.Return move may happen.
In such cases,this is a moment where buyers and sellers flip roles, making it a good entry opportunity.
In short, this is an entry aiming for a change in role of resistance to support (also called a roll reversal entry).
Again, place stop-loss when the line breaks again (returns inside the line) or near the most recent high or low.
Conclusion
Lastly, let’s review all the setup patterns with actual charts!
That concludes the introduction to take-profit and stop-loss using horizontal lines, along with basic setup examples!
These are not just about memorizing entry patterns, but also about understanding what the entry is aiming for (breakout or line rebound, etc.) and the trading mindset behind the entry, so please keep that awareness in mind.Please keep this in mind!
Horizontal lines are fundamental in line analysis and may be more effective when combined with other analysis methods, so even if you don’t trade using line analysis, please learn how to use it!
If you want to learn line analysis from the basics to achieve more advanced and reproducible trades, check this out as well! ↓
→The Secrets of MTF Multi-Time-Frame Analysis
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Next article (Special edition) is here ↓
【Special edition】Real trades of MTF analysis【Practical example of Multi-Time Frame analysis】
The next Line Analysis course article is here ↓