How to Trade Using Trendlines

[Soultrader 12]

Trendlines are useful for support and resistance purposes as well as identifying a change in the trend. Different traders have different ways to draw trendlines. For example Victor Sperandeo, author of Trader Vic: Methods Of a Wall Street Master, uses the following rules:

 

- An uptrend line is drawn under prices, joining the lowest low to the highest pullback low which does not pass the line through prices in between. The line is then extended past the date of the highest high.

 

- A downtrend line is drawn above prices, joining the highest high to the lowest rally high which does not pass the line through prices in between. The line is then extended past the date of the lowest low.

 

One particular method I use in playing trendlines is to wait for the retracement once broken. For example, in a downtrend once price breaks the trendline I will wait until the next pullback using the trendline as support. Vice versa for an uptrend. There are other ways to time your entry once a trendline is broken. You can choose to use the TICK hook's or a Fibonacci retracement for an entry.

 

Remember, always use a stop.

 

See attachement for chart picture.

 

The chart shows a broken trendline, price retracement back to the trendline, and a lift for approximately 30 points.

[JEHs 10]

I was a little confused after reading Trader Vics book, (though I think I get it, it just seems poorly defined). He says to use the highest high, (in a down trend), and the highest hi before the lowest low without drawing through prices in between. In many cases this is not possible and in the examples he shows in the book, that is not what he is doing. It seems what he means is to start with the highest high before the lowest low in the trend and draw backward to the highest high that will allow the line to be drawing without drawing through price.

Here is a chart I marked up quickly this morning:

[JEHs 10]

Trendline trading....

[jackj 10]

I think this is a case of like those pictures, that can be seen as two different things (old and young lady) depending on how you look/read it. I read your quote from Vic, and what you say in your re-phrasing, as the same thing. Your confusion is when you think that Vic is saying that the second point of the TL, the highest high before the lowest low, is necessarily the second point. He isn't; it only is IF the line doesn't pass through other prices. If it does, then you don't use that high. That's why you say it's often not possible, and you're right; in that case, that then is not the second point that you use, you go to the one where it IS possible to avoid going through prices in between, as you do in your example. I probably just confused things more:) Anyway, you're right in your understanding of it, and that's all that matters.

[JEHs 10]

Yes, I have been playing with trendlines for many years and this is the conclusion I have come up with too.

I just thought it would be worth discussion because it seemed to be worded in that book in a somewhat confusing, (at least to my simple brain), way.

 

Trendlines, for me, are the most important things on my carts. More often than not, they keep me on the right side of the trade. And "more often than not" is all we can really hope for.

 

Thanks,

John H

[jess82 10]

then, trend lines are only used on long tf trades? Actually I’m just a scalper, do you think swing strategies may be useful? Checking some market trend lines it doesn’t appear as a good indicator supporting my decisions but I’ll really appreciate your opinions, I’m just fixing strategies. Jess

[annu 10]

Yes, I have been playing with trendlines for many years and this is the conclusion I have come up with too.

I just thought it would be worth discussion because it seemed to be worded in that book in a somewhat confusing, (at least to my simple brain), way.

 

Trendlines, for me, are the most important things on my carts. More often than not, they keep me on the right side of the trade. And "more often than not" is all we can really hope for.

 

Thanks,

John H

 

hi

can you suggest me any good book for trendline learning or any link .

thank you

 

regards

[JEHs 10]

The book mentioned above by Trader Vic is here.

 

That book just has small but very important mention of trendlines.

 

Another that I have found to be good reading is here.

[JEHs 10]

then, trend lines are only used on long tf trades? Actually I’m just a scalper, do you think swing strategies may be useful? Checking some market trend lines it doesn’t appear as a good indicator supporting my decisions but I’ll really appreciate your opinions, I’m just fixing strategies. Jess

 

I find trend lines to be the most important lines on my charts no matter what time frame.

[carguy0001 10]

JEH, Is the Parson's Channel Surfing book worth buying? I never could get a critique via the web. Can you elaborate a little more about the book? Thanks

[JEHs 10]

JEH, Is the Parson's Channel Surfing book worth buying? I never could get a critique via the web. Can you elaborate a little more about the book? Thanks

 

Hmm...is it worth it...

That's always a hard question to answer. I think I bought mine for 25 bucks a few years back when Mike first put it out and it's not one of the many trading books I have chosen to sell on e-bay, so, I guess, to me, it's worth having around. Pretty simple stuff, really, but it's nice to have it written out in book form on a shelf. The cover, itself, is so wonderfully entertaining...

 

As is said many times here and other places, most of the technical stuff you need to know is available for free. I don't buy books much anymore and I would say most of the important things I have learned came from just looking at the charts and talking to other traders...

 

JH

[annu 10]

thanks JEHs for givig suggestion about trendline . i live in india and try to find out this book at good book sellers.

[ekshay 10]

I have attached the original Channel Surfing report from Michael Parsons, that was later expanded into the book. Its good for reference.

Channel Surfing.pdf

[JEHs 10]

Trendline example. This is more Trader Vic than Parsons...

[Grey1 10]

Trend line like any other indicator is not predictive and only displays a historical behaviour of price action ,,All other indicators are the same,, All they tell you is market has been going up or down and nothing more,, the reason trend line work some times is same as throwing a coin and calling head and getting head, the gambler unconsciously attaches a technical or magical reason to calling it correctly ,, if you go to LAS VEGAS you see many many people with systems in their head which they believe it works because it has logical reasons behind it,,

so what next if trend line does not work what works ? first you have to define what WORKS means,, i am 100% sure most of you guys already have a winning system which works but still looking for another one because most do not understand and know how to apply a correct RISK management to the strategy .. so i would suggest to understand risk analysis first then find a strategy with small edge ( the more edge the better but you wont be able to get more edge by reducing systematic risk only ) and apply your understanding of risk managment to your strategy and weeeeeeeeeeeeeee you got it ,,, now you are ready to tackle the market,,, Big challenge ahead but it well well worth it buddy

pro study risk ,, dreamers continously chase new indicators, new software , new tip

 

I am going to suggest a winning formula for those of you are serious about trading ,,

 

1) get yourself a platform such as TS so you can optimise your settings,

2) design a strategy which uses Price action to signal the market direction ( trend) .. look into exhaustion theory

3) get yourself a basic osciallor to give you a reasonable and technical entry such as CCI or FSST or similar ,, does not matter which one as they are more and less the same .. use FSST as it is more cycle dependent than CCI but if you have no access to FSST then use CCI or RSI

4) use both a technical and a MM exit for your strategy

5) optimise the strategy using the TS platform or neural net if you wish ,,

6) Forward test

7) Optimise your Exit strategy module further ( NO 4)

8 ) Forward test

9) Automate

 

 

 

Grey1

Edited September 22, 2009 by Grey1

[JEHs 10]

Another example from intraday data today. This is more the "channeling" perspective.

 

I don't consider trendlines to be an "indicator". For me they are just other points of interest on the charts, giving me additional S/R areas where a trade might be considered if my set-up occurs.

 

JH

[jeffh0821 10]

I personally am using a trend-following strategy and trendlines help me confirm the trend I am trying to follow. I would warn against using trendlines as S/R areas though. Generally speaking, I have not observed trendlines effectively establishing S/R levels - historical swing points areas do a better job of that. The breaking or confirming of trendlines, to me, only help to enforce or debunk the current trend, and help me understand which side of the trade to be on.

 

The graph I am posting shows my daily setup. I use EMAs to confirm trends (I do a lot of confirmation) and channels on the EMA to help me gauge entry/exits. The trendline I have on the chart (I usually do not draw them - I eyeball them) tells me I better be on the long side of any trade in this trend. My strategy gave me three profitable trades within this trend. The profit was not huge, but it was consistent. What I am working on is a scale-in/scale-out modification that would allow me to take profit as the trend continues rather than just on select pullbacks.

 

Hope this helps a little...

 

Jeff

[bpatel23 10]

I was a little confused after reading Trader Vics book, (though I think I get it, it just seems poorly defined). He says to use the highest high, (in a down trend), and the highest hi before the lowest low without drawing through prices in between. In many cases this is not possible and in the examples he shows in the book, that is not what he is doing. It seems what he means is to start with the highest high before the lowest low in the trend and draw backward to the highest high that will allow the line to be drawing without drawing through price.

Here is a chart I marked up quickly this morning:

 

So, I am still confused on how to draw trader vic's trendline. It seems to me that if you start backwards, you will often be drawing a steeper trendline within the longer term trend. Is that the correct way? Or do you start from the left side of the chart and draw forward? Also, a break in the trendline does not often lead to a reversal in the trend. What would you use to confirm a trend reversal, the break of the anchoring low point that forms the trendline?

[Enigmatics 10]

One particular method I use in playing trendlines is to wait for the retracement once broken. For example, in a downtrend once price breaks the trendline I will wait until the next pullback using the trendline as support. Vice versa for an uptrend. There are other ways to time your entry once a trendline is broken. You can choose to use the TICK hook's or a Fibonacci retracement for an entry.

 

Remember, always use a stop.

 

See attachement for chart picture.

 

The chart shows a broken trendline, price retracement back to the trendline, and a lift for approximately 30 points.

 

I'm really paying a lot of attention to that now. I've been using that method for some of my setups (using Wyckoff/VSA strategies) .... particularly with "The Creek" and using the re-test as entry. I can see how a breakout and a test of the previous resistance as support is very important to determine strength of the move.

Edited September 23, 2011 by Enigmatics