How to Draw Oil Trading Trend Lines and Channels on Crude Oil Trading Charts
Sometimes support & resistances are formed diagonally in a similar way like a staircase. This forms a oil trend which is a sustained movement in one direction either upward or downward.
A oil trend line depicts the points of support & resistance for the oil price, depending on the direction of the market. For an upward moving oil market oil trend - oil trend line will shows the points of support and for a downward moving oil market oil trend - oil trend line will show the areas of resistance - oil trend lines are mainly used by many crude oil traders to determine these resistance and support levels on oil trading charts.
A Oil Trading Trend line is a slanting straight line that connects two or more crude oil price points and then extends into the future to act as levels of support or resistance. There are two different types of oil trend lines: upward oil trend line and downward oil trend line. Oil trading trend line is an aspect of crude oil trading analysis that uses oil line studies to try and predict where the next crude oil price move will head to. A trader must know how to draw & interpret oil signals generated by this oil trend line tool.
The basis of this crude oil trading analysis is based upon the idea that oil markets move in trends. Oil trend lines are used to show three things.
- The general direction of the market - up or down.
- The strength of the current oil trend - and
- Where future support & resistance will be likely located
If oil trend lines forms in a certain direction then the crude oil market usually moves in that direction for a period of time until a time when this oil trend-line is broken.
Drawing these oil trend-lines on a oil chart shows the general oil trend of the crude oil market which can either be upwards or downward.
Below is an example of how to draw these oil trend lines on oil trading charts
Guide: How to Draw Upward Oil Trading Trend Line and Trade Upward Oil Trading Trend Move
Course: How to Draw Oil Downward Oil Trading Trendline & Trade Downwards Oil Trading Trend Move
The MT4 oil trading software provides oil charting tools for drawing these oil trend lines on oil charts. To draw oil trend lines onto a crude oil chart, crude oil traders can use the oil trading tools provided on the MT4 software that is shown below.
To draw oil trend-lines on a oil chart just click the Crude Oil MT4 Draw Oil Trading Trend Line Tools as shown above on the MT4 platform technical analysis software and select point A where you want to start drawing the oil trend line and then point B where you want the oil trend line to touch. You can also right-click on oil trend line & on the properties option select the option to extend its ray by ticking "ray check box", if you do not want to extend the oil trendline, then uncheck this option in your MT4 crude oil trading platform. You can also change other oil trend line properties such as color and width on this property popup window of the oil trend line properties. You can download MT4 software and learn oil trendline technical analysis with it.
The oil trend is your friend. Is a popular saying among investors because you should never go against it. This is most reliable method to trade Oil Trading because once oil prices begin to move in one direction they can continue to move in that particular direction for quite some time - therefore using this oil trend method presents opportunity to make profits from oil market.
Principles of How to Draw Crude Oil Trend Lines
Use candlestick oil trading charts
- The points used to draw the oil trendline are along the lows of the crude oil price bars in a rising oil market. An upwards bullish oil trend move is defined by higher highs & higher lows.
- The points used to draw the oil trendline are along the highs of the crude oil price bars in a downward moving market. A downward bearish oil trend move is defined by lower highs and lower lows.
- The points used to draw oil trend lines are extremes points - the high or the low oil price. These extremes are important because a close beyond the extreme tells investors the oil trend of the oil instrument might be changing. This is an entry or an exit signal.
- The more often a oil trend-line is hit but it is not broken, the more powerful its signal.
There are 2 main ways of trading this oil trend-line technical analysis setup:
- The Oil Trendline Bounce - Oil Trading Trend Line Bounce
- The Oil Trading Trendline Break - Oil Trading Trend Line Break
Technical Analysis Methods of Crude Oil Trendlines
The oil trend-line bounce is a continuation oil signal where crude oil price bounces off this oil trend line to continue moving in the same direction. In a downward oil trend, the crude oil market will bounce downwards after hitting this oil trend line level which is the resistance level. In an upward oil trend, the crude oil market will bounce upwards after hitting this oil trend line level which is the support level.
The oil trend-line break is a reversal oil signal where the crude oil market goes through the oil trend line and starts moving in the opposite direction. When a up oil trend is broken then the sentiment of the crude oil market reverses and becomes bearish and when a down oil trend is broken then the crude oil market sentiment reverses & becomes bullish.
For very strong oil trends, after this oil trend-line break trading signal, the crude oil price will consolidate for some time before moving in the opposite direction. For short term oil trends then this oil trendline break oil signal will mean crude oil price direction might reverse immediately.
In oil trading, both the oil trend line bounce & the oil trendline break that are used in technical analysis charts are based upon these oil trend line levels being support & resistance levels.
Entry, Exit & Setting stops:
This oil trend line trading method is used to determine good entry and exit points, protective stops are placed just above or below these oil trend lines. The oil trend line bounce is a low-risk entry method used by crude oil traders to place entry trades after crude oil price has retraced. Oil trades are setup along these oil trend line levels and a stop loss placed just above or below these oil trend lines.
The oil trend-line break is a crucial technical indicator of possible oil trend reversal. When the oil trend line is broken the crude oil price starts move in the opposite direction. This provides an early exit signal for crude oil traders to exit their open trades and take profits. When there a penetration of these oil trend line levels, it's a signal that the crude oil price can start moving in opposite direction.
Unlike other crude oil trading analysis indicators there is no formula used to calculate the oil trend line, this oil trend line formation is just drawn between two chart points on the crude oil trading chart.
