In lecture 3, we will discuss more about trendlines.
A. Role of Trendlines
B. Types of Trendline
C. DoÂ’s & DonÂ’tÂ’s in Drawing Trendlines
D. Types of Trendline Penetration
E. Role Reversal after Trendline Penetration
F. Limitations of Trendline Technique-------------------------------------------------------------------------------
A. ROLE OF TRENDLINES1. Trendline is another technique to define trend.
Uptrend : Prices consistently remain ABOVE trendline.
Downtrend : Prices consistently remain BELOW trendline.
2. It is also a means to determine nearby support or resistance.
B. TYPES OF TRENDLINE 1. Short-term Trendline1.1 Uptrend : Join two LOW points in prices BEFORE the current market and extend into the future.
Downtrend : Join two HIGH points in prices BEFORE the current market and extend into the future.
1.2 The two chosen points should be sufficiently far apart for the line to represent a trend.
1.3 EXTEND the line into the future to see whether the trendline drawn would remain intact or be penetrated by the price.
2 Long-term Trendline 2.1 Identify a significant low or high point.
2.2 Identify a retracement low or high. (This means price must have resumed its move after the retracement low or high.)
2.3 Join the significant low/high to the retracement low/high.
2.4 EXTEND the line into the future to see whether the trendline drawn would remain intact or be penetrated by the price.
3. Significant Trendline3.1 The important point in trendline technique is to identify a significant trendline which best represents the marketÂ’s trend. A significant trendline can be a short-term or a long-term trendline.
3.2 The more times a trendline has been tested and survives the tests, the more significant is the line.
3.3 The longer the period the line remains unbroken, the more significant is the trendline.
A
significant trendline is one which when it is penetrated leads to a change in trend.