UPS AND DOWNS OF
TRENDLINES
•TRENDLINE CONSTRUCTION
•EXTENDED TRENDLINES
•SIGNIFICANCE OF TRENDLINES
•TREND CHANNELS
•CORRECTIVE FAN PRINCIPLES
TRENDLINE CONSTRUCTION
TRENDLINES ARE ONE OF THE MOST SIMPLE, YET
EFFECTIVE, OF ANY OF THE TOOLS USED IN
TECHNICAL ANALYSIS
SINCE MARKETS CAN MOVE SIDEWAYS, TRENDLINES
CAN BE HORIZONTAL
IN ORDER TO DRAW A PROPER TRENDLINE, IT IS NECESSARY TO HAVE
2 REVERSAL POINTS TO CONNECT, OTHERWISE IT IS A LINE DRAWN IN
SPACE WITHOUT ANY TECHNICAL SIGNIFICANCE
A TRENDLINE REPRESENTS A DYNAMIC MOVING AREA OF SUPPORT AND
RESISTANCE
A GOOD TRENDLINE REFLECTS THE UNDERLYING TREND IT TRIES TO MONITOR
THIS IS NOT A TRUE TRENDLINE
THE MORE REVERSAL POINTS ARE ON YOUR LINE,
THE STRONGER THE TRENDLINE
3
2
1
THE MORE REVERSAL POINTS ARE ON YOUR TRENDLINE,
THE MORE IMPORTANT WILL BE ITS VIOLATION.
UNFORTUNATELY, THERE IS NO WAY TO KNOW WHICH
OUTCOME WILL OCCUR AT THE TIME OF THE VIOLATION
VILOATION OF THE GREEN SUPPORT LINE ON THE
RECTANGLE, AND VIOLATION OF THE RED TRENDLINE
EXTENDED TRENDLINES
AN OFTEN FORGOTTEN POINT CONCERNING TRENDLINES IS THE FACT THAT
ONCE THEY HAVE BEEN PENETRATED, THEY REVERSE THEIR ROLE AS
SUPPORT AND RESISTANCE LEVELS.
A
SIGNIFICANCE OF
TRENDLINES
TRENDLINES OBTAIN THEIR SIGNIFICANSE FROM 3 FACTORS :
1.
THEIR LENGTH
2.
THE NUMBER OF TIMES THEY HAVE BEEN TOUCHED OR
APPROACHED
3.
THEIR ANGLE OF ASCEND OR DESCENT
VIOLATION OF ST-TRENDLINE HAS LITTLE
IMPACT ON THE OVERALL TREND.
VIOLATION OF LT-TRENDLINE HAS SEVERE
REVERSAL IMPACT ON THE OVERALL TREND.
THE MORE TIMES A TRENDLINE HAS BEEN TOUCHED
OR CLOSELY APPROACHED, THE MORE RELIABLE IS
THE SIGNAL
THE STEEPNESS OF THE TRENDLINE IS THE THIRD MAIN
FACTOR OF SIGNIFICANCE
VERY OFTEN, PENETRATION OF STEEP TRENDLINES ARE
FOLLOWED BY CONSOLIDATION PHASES
LESS STEEP TRENDLINE, THEREFORE MORE LIKELYHOOD OF
TREND REVERSAL . ANY FAMILIAR FORMATION ?
TREND CHANNELS
OCCASIONALY, IT’S POSSIBLE TO CONSTRUCT ATRENDLINE THAT RUNS
ROUGHLY PARALLEL TO THE BASIC TRENDLINE
EXAMPLE OF AN UPTREND…
RESISTANCE NOW BECOMES A SUPPORT LINE
IT’S SOMETIMES POSSIBLE TO CONSTRUCT ANOTHER CHANNEL
Volume ?
THE MOVE OUTSIDE OF THE CHANNEL DOES NOT HAVE
THE SUFFICIENT POWER TO GO HIGHER…NOT A GOOD
SIGN !!!
CORRECTIVE FAN PRINCIPLE
THE FIRST RALLY IN A BULL MARKET IS USUALY EXPLOSIVE,
SO THE RATE OF ASCENT OF THE PRICE IS USUALY
UNSUSTAINBLY STEEP
TRY TO DRAW A FIRST TREND LINE…
(PRIMARY TREND)
…THEN DRAW A SECOND TRENDLINE…
(INTERMEDIATE TREND)
THOSE 3 LINES REPRESENT THE PHASES OF A BULL MARKET
…AND FINALLY A THIRD AND LAST TRENDLINE !!
(LT-TREND)
THIS IS THE FAN PRINCIPAL !!
SAME PRINCIPAL THE OTHER WAY AROUND…