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, YETEFFECTIVE, 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 HAVE2 REVERSAL POINTS TO CONNECT, OTHERWISE IT IS A LINE DRAWN INSPACE 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

THE MORE REVERSAL POINTS ARE ON YOUR TRENDLINE, THE MORE IMPORTANT WILL BE ITS VIOLATION.

1

2

3

UNFORTUNATELY, THERE IS NO WAY TO KNOW WHICHOUTCOME 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 THATONCE 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 TOUCHEDOR CLOSELY APPROACHED, THE MORE RELIABLE IS THE SIGNAL

THE STEEPNESS OF THE TRENDLINE IS THE THIRD MAINFACTOR OF SIGNIFICANCE

VERY OFTEN, PENETRATION OF STEEP TRENDLINES ARE FOLLOWED BY CONSOLIDATION PHASES

LESS STEEP TRENDLINE, THEREFORE MORE LIKELYHOOD OFTREND REVERSAL . ANY FAMILIAR FORMATION ?

TREND CHANNELS

OCCASIONALY, IT’S POSSIBLE TO CONSTRUCT ATRENDLINE THAT RUNS ROUGHLY PARALLEL TO THE BASIC TRENDLINE

RESISTANCE

SUPPORT

EXAMPLE OF AN UPTREND…

RESISTANCE NOW BECOMES A SUPPORT LINE

IT’S SOMETIMES POSSIBLE TO CONSTRUCT ANOTHER CHANNEL

THE MOVE OUTSIDE OF THE CHANNEL DOES NOT HAVETHE SUFFICIENT POWER TO GO HIGHER…NOT A GOODSIGN !!!

Volume ?

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)

…AND FINALLY A THIRD AND LAST TRENDLINE !!(LT-TREND)

THOSE 3 LINES REPRESENT THE PHASES OF A BULL MARKET

THIS IS THE FAN PRINCIPAL !!

SAME PRINCIPAL THE OTHER WAY AROUND…