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Do Trendlines work?
- Thread starter duard
- Start date
Thanks for the below and chart by bi9foot on previous page. Will see next week whether drawing these channels will avoid getting me into an overnight trade where gaps occur on the wrong side. I have a sneaky suspicion that it would help.
Quote from Spydertrader:
The following clarification assumes one trades (always) in the direction of the dominant trend.
If the large gap occurs in the same direction of the dominant trend (in the case of ASCA above - up), then the trend remains valid. If by doing so the gap breaks through the left side of the smaller (thin green lines) channels, then one simply adds an 'increased volatility' trend line to the upside and continue on - anticipating a traverse of the entire (larger) trend channel. On the other hand, a gap in the opposite direction of the dominant trend often invalidates the trendline analysis up to that point. As such, one needs to allow the new paradigm to take shape (new trend formation) before jumping in with both feet.
You can locate the entire methodology I use to trade equities (and more recently futures), in my two Journals. Journal I focuses on 'Beginner Level' Methodology, and Journal II reinforces the Beginner Methods, while adding on, Intermediate Level Methods.
Good Trading to you.
- Spydertrader
Once again, trendline "magic".
One may play a bounce from this line or play a break through this line, for just a couple ideas. Of course when to get it, when to get out it up to you.
Or, if already long, the T/L may be a place to add, it may be a place for a stop, and on and on.....
Point is: line has held at least 3 times, it is acting as support
the "trendline is working"
Oh, by the way, I personally may go short on a break of the line if it happens soon. There is some support not too far below though so this will be a quick trade.
One may play a bounce from this line or play a break through this line, for just a couple ideas. Of course when to get it, when to get out it up to you.
Or, if already long, the T/L may be a place to add, it may be a place for a stop, and on and on.....
Point is: line has held at least 3 times, it is acting as support
the "trendline is working"
Oh, by the way, I personally may go short on a break of the line if it happens soon. There is some support not too far below though so this will be a quick trade.
Attachments
hehe. Nice.
Probably one of the easiest and best ways to trade the market.
Pretty amazing stuff.
Probably one of the easiest and best ways to trade the market.
Pretty amazing stuff.
Quote from duard:
I am starting this thread to propose an hypothesis regarding why I believe trendlines are significant, not random and of use in trading.
I believe many "major" trendline breaks are correlated to "news" or "fundamental" changes in a given market. Trendline breaks then reflect this change.
For instance let's say you have an 11 market day uptend on a daily chart. HH and HL. But then oil, inflation, non-farm payrolls, etc. fundamentally change the perception of the current price trend and you get a price trend break from up to either down or consolidation.
That is why I believe trendlines work.
Any thoughts or research to support or refute this simplistic view of trendlines is welcomed.
D.
the age old question.
i have been examining trend lines for the past 14 years of trading.
the answer would be really how you draw them and how you interpret them. you can clearly see if a market is in a down or uptrend depending on the time frame you are using of course. problem with the trend lines are what you would consider a break of the trend line or a confirmation of the trend line. in volatile markets there are many whipsaws that break through and then it just resumes its trend or is the trend nearing an end?
succesful traders always trade with the trend. the problem is trends always end and then move the opposite way to start a new trend. the trick is you can't get on too late. if you do you will lose.
there is an old expression "the trend is your friend" i would like to add my own expression to that "the trend will end"
happy trading.
Triggertrader,
Very true that the trend(line) is your friend until it isn't. The rub, as you say, is the chop. Trader Vic's 1-2-3 is as good as anything I've read and he tells you how to draw the damn things.
The problem with news is that usually it isn't new to the people who are moving the markets unless it comes out of left field and then everyone gets a surprise - a nice one if you're on the right side of the line and not so nice if you're not.
Trendlines in and of themselves have no predictive value whatsoever. As Taleb says always be aware of the possibility of being fooled by chance.
lj
Very true that the trend(line) is your friend until it isn't. The rub, as you say, is the chop. Trader Vic's 1-2-3 is as good as anything I've read and he tells you how to draw the damn things.
The problem with news is that usually it isn't new to the people who are moving the markets unless it comes out of left field and then everyone gets a surprise - a nice one if you're on the right side of the line and not so nice if you're not.
Trendlines in and of themselves have no predictive value whatsoever. As Taleb says always be aware of the possibility of being fooled by chance.
lj
Quote from ljyoung:
Trendlines in and of themselves have no predictive value whatsoever.
lj
They absolutely DO have predictive value, remembering that no prediction with a chart is 100% guaranteed.
Look at the very last example that I posted just a few entries before this. It was in realtime. Price came down the the trendline again and it bounced. One could have "predicted" that price would bounce from the trendline. One of the most common "predictions" or uses of a trendline is that it MAY act as support or resistance which CAN predict a bounce from the S/R area.
I am attaching the chart I posted and below it, what eventually happened later.
Attachments
Tradersavvy,
Do you have any instances where in spite of your expectation that price would bounce off the trendline, it in fact didn't? I'm sure that you do and as you say yourself: "...remembering that no prediction with a chart is 100% guaranteed."
All I am saying is that what a trendline can do is to alert the trader to the possibility, (which depending upon the particular circumstances surrounding a particular trade will have a certain probability associated with it), that something is going to happen. It does not say that it will happen with certainty and that would seem to be a point that we agree on.
The great Einstein used to say that the value of a theory was to be found in its ability to accurately predict the results of future experiments. Experiments drive theory - period. The goal, I would suggest with folks who use trendlines in their trading, is to derive a set of parameters which would allow one to say that if this parameter set contains these values then with a probability between 0 and 1, this event will happen.
To derive such a parameter set for the market would be to say the least, non-trivial but, I would suggest, not impossible because kortotic events aside, there is a finite collection of things that the people who move the markets can do. The first step in the search, IMO, is to appreciate that as a retail trader (and speaking only for myself) I ain't going to be moving the market in any meaningful sort of fashion.
lj
Do you have any instances where in spite of your expectation that price would bounce off the trendline, it in fact didn't? I'm sure that you do and as you say yourself: "...remembering that no prediction with a chart is 100% guaranteed."
All I am saying is that what a trendline can do is to alert the trader to the possibility, (which depending upon the particular circumstances surrounding a particular trade will have a certain probability associated with it), that something is going to happen. It does not say that it will happen with certainty and that would seem to be a point that we agree on.
The great Einstein used to say that the value of a theory was to be found in its ability to accurately predict the results of future experiments. Experiments drive theory - period. The goal, I would suggest with folks who use trendlines in their trading, is to derive a set of parameters which would allow one to say that if this parameter set contains these values then with a probability between 0 and 1, this event will happen.
To derive such a parameter set for the market would be to say the least, non-trivial but, I would suggest, not impossible because kortotic events aside, there is a finite collection of things that the people who move the markets can do. The first step in the search, IMO, is to appreciate that as a retail trader (and speaking only for myself) I ain't going to be moving the market in any meaningful sort of fashion.
lj