Valid Trend Line?

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Hi threei,

If I could give you one bit of advice, it would be to never draw another trend line on a chart again. They are misleading fiends!

If its going up, its going up - you will be able to see it. Same for down. If you can't tell which way its going or you are not sure, don't try and guess by drawing trend lines, just leave it alone.

If you can tell wich way it's going, you don't need a trend line.

If you think the only purpose of a trendline is to see which way price is going, then you've missed the point in them altogether. Trendlines can be very useful tools for technical traders but you have to be consistent and use at least some objective rules from which to draw them. The old criticism is that you show a chart to a dozen technical traders and you'll get a dozen different trendlines, which highlights how subjective they can be. Tom Demark set entirely objective rules for drawing trendlines, using (and joining) the most recent supply and demand 'fractals'. I'd recommend reading some of his work, if only to get some ideas from a respected professional about how they use market geometry in their trading.

Yes that was a legitimate setup. Keep your stops tight and don't sweat it. You also have to keep in mind that this pair was in an uptrend. No it is not really easy to see on the daily, but if you were on the 4 hour you would have been long. Also, you can't see it on the daily, but on the 4 hour there was a perfect, risk free short setup that has already given 185+pips. When you are looking for these types of trades, it is helpful to look for the last point a legitimate trade happened. If it is only in small profit relative to the time frame, price will most likely keep going in the same direction until decent profit territory is reached. Then price can work on turning around. So like I said, right now we are in a short setup with this pair and we are only +185 pips, this particular trade will probably run 300+ to the south. Keeping this in mind, you don't want to be looking for long, but a place to jump in short on a smaller time frame.

What are you talking about?? There are many different uses of trendlines: potential price pull backs, target profit areas, support / resistance. Often alot of traders place stops / limit orders outside these lines which is why the market always reacts around them. The long the timeframe the line is drawn over the bigger the impack it has.

To answer your original question, about this being a valid trend line or not, I personally wouldn't. I like the line to touch at least 3 points, all be it wicks or candle bodies. Hope that helps.

I forget to say, you should have anchored at that extreme high. Other than that though, you were golden.

One thing you might want to consider is excluding Sunday bars when you're charting on the daily time frame. They distort your TLs and I have found daily charts to be more accurately described using daily charts consisting of 5 bars per week. In fact, I'd say draw your lines on the 1H and zoom right out so you get to look from a daily, longer term perspective, whilst still maintaining the accuracy of the 1H.

Any trendline you draw, using whatever rule-set could be valid. Using the demark method, high to high, low to low best fit, high to low, vice versa, etc.. There are many variations and the fact that they exist at all suggests somedody somewhere finds some validity in them. The key, for me at least, is how price behaves around these trendlines and whether price respects them. This does not necessarily mean I am looking for bounces from them, as I do not believe they have a great deal of value for identifying support and resistance, but what I really find fascinating is when price breaks and shoots through them. Think about what implicatons this might have for those buyers and sellers in the market - who is feeling the fear, and how might these agents react if and when price returns to that level?

Nice post birdt.

Also keep in mind that just because a trendline is pierced, does not necessarily mean it has been completely nullified.

I like to think of trendlines as areas of resistance instead of brick walls. Yes, sometimes they get hit to the pip, and that's nice, but there are plenty of times that price will come up just short of the trendline before reversing, or price will pierce up through but not have a follow-up, only to sharply reverse back down through one. When you think of it this way, it's best to just watch a few bars of price action (unless you get certain better % moves, like a strong wick that hits the line exactly) in the general area of the trendline and base your entry on that instead of just watching it get hit and immediately assuming that this will hold.