Training Video_4

 

Trend Lines .

 

This video introduces you to normal trendlines, the uptrend and downtrend lines, and special trend lines I am using like the inverse or hidden trend lines, the center lines, action and reaction lines and multi-reversal lines.

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Hallo this is Sylvain Vervoort with your technical analysis video about trend lines. If you like this video, pay a visit to my website at stocata dot org and tell your friends about it.  The final purpose of this video series is to teach you how to trade successfully applying technical analysis.

Technical analysis is built on the assumption that prices trend. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. An uptrend line has a positive slope and is formed by connecting two or more higher low points. Uptrend lines act as support. As long as closing prices remain above the trend line, the uptrend is intact. A closing price break below the uptrend line indicates a change in trend

A downtrend line has a negative slope and is formed by connecting two or more lower high points. Downtrend lines act as resistance. As long as closing prices remain below the downtrend line, the downtrend is intact. A break above the downtrend line with the closing price indicates a change of trend and is a buying signal.

One or more big up or down bars at a reversal point may be the reason that it is difficult to draw a new trend line from the highest or lowest point.  Ninety-nine percent of the time, the move that follows will not be as steep as suggested by the new trend start. In these circumstances, the new downtrend or uptrend line will have to start with one of the previous or following bars, or at some previous support or resistance level. In the example chart here we can start from the top resistance of a window, giving a much better medium term uptrend line.

A medium to longer term uptrend or downtrend not always develops the same way. Looking at different charts and periods you will notice that from the start of a new price move, the trend shows three possible scenarios before reaching the end of that trend:
The first one is: no change; the price continues to move along the trend line until it breaks that trend. It is rather uncommon that there is no change. Medium- and long-term moves will show most of the time a change in trend acceleration.

The second sort of price trend evolution to consider is when price accelerates and moves far away from the current trend line; you need to draw a new, steeper trend line. Price acceleration often is a three-step process. The trend is broken after the third acceleration, when it has become a very sharp move.

The third variant in price trend is a decelerating price with a moderate trend break and price that temporarily continues less steep. Many times a longer-term uptrend starting with a sharp up-move will generally slow down. Support and resistance will help you to decide to stay in the trade during the trend deceleration.

A special trend line I want to introduce is what I call an inverse or hidden trend line. Sometimes it may seem difficult to start drawing a normal trend line. This is common with a big bar or a V-shaped reversal at a top or bottom. In an ascending trend, the inverse trend line is drawn from price tops. In a descending trend, the inverse trend line is drawn from price bottoms. After locating the inverse trend line you can create a parallel line and move or copy it to the other side. This will many times be the correct future support or resistance line. Keep in mind that your parallel line may have to start from a previous or next bar because of a large bar at the bottom or top. As you can see in this chart, price did find support on the parallel line, based on an inverse trend line extended into the future.

Another special trend line is the centerline and is drawn between a bottom pivot point and a top pivot point or visa versa. This kind of trend line can be used as a reference for action-reaction lines which we will talk about in more detail later on.
A parallel line with the centerline through a previous high or low point is the action reference. Preferably, the action line and the price data should show a similar slope. From here on, you can create a second parallel line; this is the reaction line projected into the future. The distance from the centerline is equal to the distance between the centerline and the action line. Note how the prices turn at the reaction line and how they start moving up again with about the same slope as the original top-bottom centerline.

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The last special trend line is the multi-reversal line touching bottoms as well as tops of the price bars. Multi-reversal lines are used as a reference for action/reaction lines but also for future price support or resistance. Look at this chart how multi-reversal lines show support and resistance to future price movement. Multi-reversal lines not only complement price targets, but in combination with for example Fibonacci price projections (that we will talk about later on) they can project time estimates as to when a price target can be reached. Note in the chart how the first and second Fibonacci targets are reached close to the time estimates given by several crossings with the special trend lines.

That’s it concerning normal and special trend lines. I hope you enjoyed it. Watch out for a special video teaching you how to make nice profits trading long term based on trend lines. I am sure you do not want to miss that one. Tell your friends about it! Pay a visit to my website: stocata dot org. Have a nice day and I hope I see you in the special video about long term trading based on trend lines.

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