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eurotrader

Trendlines

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I've been having a closer look at the drawing of trendlines of late and, Trader Vic aside, would like to canvas others opinions on how they would draw a trendline in the following scenario. Market is an uptrend from a prior swing low and has finished retracing to form a higher swing low. However, the second swing low is composed of 2 or more bars all with the same low (effectively a double/triple/etc. bottom). Drawing your trendline up from the first swing low, which of these bars with the same lows would you choose as the second point in your trendline? What if the origin of the trendline has two or more bars with equal lows, which would you choose as the origin? Would you go from the first to set the swing low to the one that started the next up-move? You can see the variables. It may seem like a silly question but it can affect effect your trendline substantially depending on the distance between the two swings? I''m sure there is no correct answer to this question, like so many things in trading, but it will be interesting to see how other traders approach this scenario. Cheers.

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You can find all the answers you are looking for concerning trendlines in Thomas Demark's book, "The New Science of Technical Analysis," it will really change the way you understand trendlines and I'm sure it will be profitable for you.

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Thanks clmacdougall. Went back and pulled out my book on DeMark's indicators and had a good read back over the section on TD Lines. I'd completely forgotten about them. Programmed them into Investor/RT and can definitely say it has been a big help in eliminating the guess work of which points to use. Cheers!

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Thanks clmacdougall. Went back and pulled out my book on DeMark's indicators and had a good read back over the section on TD Lines. I'd completely forgotten about them. Programmed them into Investor/RT and can definitely say it has been a big help in eliminating the guess work of which points to use. Cheers!

 

On a bit of a sidenote, I found it really important to understand that the break of a trendline was really nothing more than either a slowing of price momentum or a slight change in support or resistance, it has a very limited predictive ability concerning the degree of change which "might" follow it being broken IMHO.

With all that said Mr. Demarks TD line stuff is the most thorough out there concerning trendlines. At least that I've come across.

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On a bit of a sidenote, I found it really important to understand that the break of a trendline was really nothing more than either a slowing of price momentum or a slight change in support or resistance, it has a very limited predictive ability concerning the degree of change which "might" follow it being broken IMHO.

With all that said Mr. Demarks TD line stuff is the most thorough out there concerning trendlines. At least that I've come across.

 

Yes, I agree with you here and have found the same with regards to breaks of trendlines. In fact don't trade breaks of trendlines at all. I also don't use DeMark's trade setups using TD Lines as looking back over time they don't seem to be overly reliable. However, I do find the TD Lines to be of value for staying on the right side of trend and monitoring changing momentum. They also help solve the issue of swing points defined by multiple bars with identical highs/lows.

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To draw Trend Line you must have a confirmed TREND... (Point2 taken out)...Here is some confirmed Tl's......:missy:

attachment.php?attachmentid=19257&stc=1&d=1266151605

 

 

Yes, that's fairly basic and understood. The crux of the issue is dealing with swing high/lows consisting of multiple consecutive bars all with identical prices for the high/low.

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I have traded trend lines for a long time and here's what I'd like to share. The main point of my method is that you should determine a trend first. It's hardly to trust trend lines as sup/res levels when you don't see a trend. It's a safiest way of using trend lines - to analyse a trend, so you can make a very profitable trade. Once you have found a trend, you should sertainly trade in the direction of the trend. Wait till price crossed the trendline (consider here as sup/res level) and when buy on close. Set SL on opposite side of the line. Take profit is before the next sup/res level.

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Yes, that's fairly basic and understood. The crux of the issue is dealing with swing high/lows consisting of multiple consecutive bars all with identical prices for the high/low.

 

Mr. Demark dealt with the problem of multi-equals in an article of "Futures online edition".

I hope this email add still works, if not just let me know. http://www.futuresmag.com/industry/references/demark1097.html

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Thanks. Gave it a try but doesn't appear to be working.

 

Sorry about that eurotrader, I guess that's an old address. It will suffice to say that when you have multiple equals always draw your line to or from the last one in the multiple set, no matter how many there happens to be. If I come across the article I will let you know what address I found it at.

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Many thanks for that, big help. I keep meaning to subscribe to Futures mag but never seem to actually get around to it. Will have to pull my finger out and do it. Seems like they always some very good articles in it. Cheers!

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I have been experimenting with trendlines lately and am curious what your logical basis is for using them. In other words, what reality do you thing a trendline is showing that will have predictive value.

Does it illustrate market psychology, is it just usefull becuase everyone else is also seeing it, does it just help you see the scoreboard of the game between bulls and bears?

 

I was trying to determing which trendline I should favor, one drawn with contract volume based bars or one using time based charts. This lead me to considering much more about why I should really include them in my analysis.

 

The more I use them, the more I realize I like them just because of the context they put price in. Just the same as the price and volume give me context, S/R and trendlines seem to give context at another level which makes other considerations easier. For example, price reactions to an S/R level feels easier to understand when it is at the end of an upward trend which hasn't been broken.

 

Anyway, still playing around with them trying to see how and if they will fit into my strategy. Just thought I would continue this thread with a few thoughts in case anyone wants to discuss them more. Here is my SIM blotter I posted on the P/L forum Friday for my Gold trades. I was watching for trendline break along with some short term S/R to get an area to look for an entry. Once a major move starts on oil, gold, or gas I look at trendlines for pullback setups.

 

attachment.php?attachmentid=20674&stc=1&d=1271714962

5aa70ffa64c39_4-16-201006.thumb.png.ce21ba73490684c02bc40763d4f15c21.png

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Don't play with them Dinerotrader

 

Get the book Stikky Stock Charts that Thales recommends. Read it carefully. The apply what it says and see if you can make it work.

 

I highly recommend the book and guarantee you'll do better with trendlines after you read it.

 

What is more, its cheap and a fun read.

 

 

Stikky Stock Charts

.

Edited by Kiwi

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dinero - while I agree with Kiwi, I also think that your point is valid about context and " I look at trendlines for pullback setups"....this can give a nice visual for brain muscle memory if you like.

I think they will drive you nuts looking for the perfect way to use them.

As a suggestion, define a way for yourself to draw them, be it visually and free hand, or in a more structured way (TDeMark, Trader Vic), and then be consistent using them as an indicator only, and to give the general vibe....otherwise its just another holy grail chase.

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dinero - while I agree with Kiwi, I also think that your point is valid about context and " I look at trendlines for pullback setups"....this can give a nice visual for brain muscle memory if you like.

I think they will drive you nuts looking for the perfect way to use them.

As a suggestion, define a way for yourself to draw them, be it visually and free hand, or in a more structured way (TDeMark, Trader Vic), and then be consistent using them as an indicator only, and to give the general vibe....otherwise its just another holy grail chase.

 

DugDug, could you let us know what you personally consider to be a pullback, what is your context for defining one. And once defined whose definition of a trendline do you use for trading that pullback? Thank you.

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I dont have a definition for a pullback, I was quoting Dinero.

I also dont have a strict definition of a trendline.....I draw them freehand that was my point.

Over the years I have found them to be handy to act as a visual tool in order to remind myself of what i am trying to look for in a trade.

 

The example I have attached is a simplistic but good one ....

6A in a small downtrend, breaks the downside momentum shown by two things, the trend line penetration (any trend line drawn roughly would probably have been broken), and the breakup or the highest highs (set at 25, but any number will do, so long as its consistent).

This reminds me that for me in this instance, the down trend has been broken, a good entry maybe during the pullback toward the trend line, OR if the trend line has been broken, and then uptrend resumes, after a pullback it provides a good time to get on board.

(eg, the first close on a bar in the new uptrend direction, near the P)

 

If anything I also look for the zones of a pullback to be in the 50-61% of the "trend line break" if you like. Hence I dont particularly like double bottoms.

(this range was approx from 91.00 bottom to 91.60, back down to 91.19)

Nothing that I could attempt to quantify in a programing sense.....more just a visual reminder, of the price action.

attachment.php?attachmentid=20679&stc=1&d=1271760997

trendline.jpg.80a26959aec0aab6ae256ea19a874ff4.jpg

Edited by DugDug

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