| Trendlines, not to be confused with Trend Channels | | | | for more information) A stock or market that is |
| Terminology is an important part of communicating | | | | making higher highs and higher lows increases the |
| an idea to another effectively. It is with this in mind | | | | probability that trendline breakouts to the upside will |
| that I would like to elaborate some on the above. | | | | be valid and have positive outcomes. The same holds |
| As most people familiar with technical stock market | | | | true for falling markets. Sideways or stagnant |
| analysis know a trendline is a line connecting two or | | | | markets are the most difficult for people to read |
| more high points or low points in price together. That | | | | generally. Trending markets tell a story of advance or |
| line, once constructed, can be projected out in time, | | | | decline and give direction to their followers. Sideways |
| continuing at the same angle of ascent or descent | | | | markets tell of confusion and frequently trap traders |
| for an indeterminate period. Depending on the time | | | | in its activity. Where would you rather be, on board |
| scale of a chart the trendline can extend for minutes, | | | | with some direction or on board with no clear |
| days, weeks, months or years. | | | | indication of direction which essentially wastes your |
| A trendline channel was originally constructed to | | | | time and return on investment. |
| define an upper and lower range of price activity. | | | | The market is like a living breathing creature ever |
| Trendline channels historically serve as simple | | | | evolving, expressing price, time and volume as a part |
| directional indicators with an understood overbought | | | | of its growth. Mathematicians have devised many |
| oversold condition attached at their extremes. | | | | complex algorithms to express their theories about |
| This channel it was observed frequently served as a | | | | market activity. If the equations they have used to |
| kind of funnel into which price was projected for a | | | | express the market are incorrect it will give back |
| period of time. It was, also, observed that when | | | | incorrect values. I prefer to let the mathematical |
| price reached or neared the top of this trendline | | | | structure of the stock or market I am following be |
| channel price would often retreat from there, as well, | | | | my guide as its values are the ones that will provide |
| when price reached the bottom of this trendline that | | | | true and accurate clues. |
| it often served as a turnaround point for price. | | | | In keeping with the KISS philosophy I have found |
| Trendlines, as I prefer to exercise their use, reflect | | | | that Trendlines used to intersect high and low points |
| many symptoms of the current market condition by | | | | along a line of price activity greatly increases my |
| gauging price activity. It is pricing activity that helps | | | | ability to accurately time market turning points. When |
| us to determine whether a market is trending | | | | I am wrong it is because I was attempting to force |
| upwards, sideways, or downwards. This directional | | | | an outcome rather than let it dictate its own timing. |
| guidance we achieve by using Trendlines gives us | | | | Trendlines do not tell me how far a market is going |
| much of what we need to know to help us gauge | | | | to run up or down unless I have other supporting |
| the condition of a stock or market. | | | | information regarding the possible projection of price. |
| I regularly construct trendlines that define areas of | | | | We can project price along a plane and create many |
| price intersection weeks or months in advance that | | | | possible price intersections but only time will tell us if |
| prove to be important areas of price response. I | | | | we are accurate. |
| seldom know exactly where and most importantly | | | | Think of time, price movement and volume as the |
| when this price response will occur along the trendline | | | | DNA of a stock or market. Giving us many telling |
| but given the range of price activity in a given stock | | | | clues about its characteristic traits its strengths and |
| or market we can often begin to gauge substantially | | | | weaknesses. Trendlines can be used to dissect time |
| in advance when price is likely to intersect these | | | | and price movements using the mathematical |
| trendlines. It is the market activity up to that point in | | | | relationship already expressed within a given stock or |
| time and price that helps give us clues as to whether | | | | market. A Trendline helps to correlate the markers or |
| price will penetrate a trendline and indicate a change | | | | traits within time and price activity that give us clues |
| in direction or whether it will indicate a continuation of | | | | to its possible evolution as price and time going |
| direction along its indicated path. | | | | forward. |
| For trendlines to have value they must be indicative | | | | It is wise to have other trusted indicators pointing to |
| of probability. To enjoy the value of this probability it | | | | a shift in price or direction. There are no indicators, |
| is important to know some basics of chart | | | | though, that help you to dissect price or time using |
| interpretation. (Read my other articles on trendlines | | | | chart patterns as trendlines do. |