Do Trendlines work?

epetrov

This is a great chart example

On the daily timeframe, one could look at a chart back to at least October of last year and see clearly that the 40'ish area is resistance.
Well, even recently price has gotten just under 40 and retreated. Currently price has retreated and is at this very clear uptrend line that you noted on your chart. Here is where a trade opportunity could exist.

1. Continue with the "price is going down" sentiment and look for a short under the trendline. See chart #1

2. On a shorter time frame look at the trendline as a support area and go to a smaller timeframe to look for a long. See chart #2
 

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Quote from tradersaavy:

This chart has multiple timeframes lining up and building energy for a move.

From the oveall bottoming pattern, to the pause for a 3rd time at this resistance area, (oh, trendline) to the small contracting/overlapping bars with tail on the top and bottom.

And where would I personally consider the trendline/resistance broken?
Over the high of the highest candle in the last few days of contraction.
Or, under the low of the lowest candle in the last few days of contraction.
More...

See updated chart.
 

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I use trend line and feel that they definitely work. Now I don't think they work for some super scientific reason. They are probably more a self-fulfilling prophesy that since so many people look at them and assume they work that it in turn causes them to work. I don't really care, I use them, and I make money...nuff said.
 
Maverikz,
could you please publish one or teo exmples of usage of trendlines in ET?
Surely there are two sides - trendlines and the operator from the other side.:D
 
Here is one I posted on Thursday, preparing for ta break out on either of the downtrending line signaling a bullish entry or a breakout below the uptrending line signaling a bearish signal. On Firday SPY broke it's short term uptrend signaling my entry. I picked up some 140 puts in the morning and I had made $0.425/share at the close. I am still in the position currently.

I also use S&R so I will be looking to get out around it's minor support of about 131. It will then do one of two things, have a partial retracement and then resume the decline and I'll be looking to get back in, or it will push through the support and I'll be looking to get back in for the ride down to the next support level of about 126.50.

<img src="http://www.fantasydaytraders.com/eqpics/sp6mo-2.jpg">
 
Quote from tradersaavy:

See updated chart.
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Yep these are one of the types of setups I love to see. I have modified your chart to show you how I view it. When you see the price being wedged into a pennant it is going to have to make a choice of which line to break. Once one of those lines is broken it usually means continuation in the direction...sometimes quite rapidly.

<img src="http://ww.fantasydaytraders.com/eqpics/INDU-wedge-1.jpg">
 
Quote from Maverickz:

Yep these are one of the types of setups I love to see. I have modified your chart to show you how I view it. When you see the price being wedged into a pennant it is going to have to make a choice of which line to break. Once one of those lines is broken it usually means continuation in the direction...sometimes quite rapidly.

<img src="http://ww.fantasydaytraders.com/eqpics/INDU-wedge-1.jpg">
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Hi Maverickz,
as far as I see from your examples, in overall you do the following:
1. Look for breakout from S/R level (trendlines - TL);
2. Since the breakout it there, maybe you zoom out the chart and look a proper level to enter and to set up the SL.
3. Set target to the next S/R level

So does it mean the the TLs work?
I thing that this proves that it's better not to use TL and a trading tool, i.e. not to enter just after restacement of the TLs.
For example: in the above picture - you partisipate not after the retracement from the horisontal resistance (trendline), but only after the breakdown through the support trendline. Right?

In other words - break of the trendlines works fine, but just following of the trendlines - not reliable enough.

What do you think about that?
:) :)
 
Since the instrument we were looking at was INDU, here is a 1yr chart marked up with trend lines. Now I really don't feel like doing the math but if you want look at the folowing. Assume you started out at the far left of this chart and saw the first trend up. As soon as the price crossed over that line to the downside you shorted 100 shares. Then you bought to cover the 100 shares and bought an additional 100 shares for a long position when it broke the new down trend and started heading back up. For the whole chart every time the price crosses a line going down sell your 100 shares and short 100. Every time it crosses a down trend line and head up you buy to cover the 100 shares and buy a 100 for a long position. Tell me how much money would you have made total today 1 year later. Is every trade a perfect optimal trade with maximum profit? No. But I don't care about perfect. If I can take $100 off the table I don't care that I missed an extra $10. The goal is to make a significant profit.

OH and yes I know that no one is going to just run out and buy 100 "shares" of INDU but I already had the chart up and had drawn the trend lines so I used it as an example only. However for mathematical purposes if you ignore the last (2) 0's of the INDU it will give you the basic price of DIA which you can trade.

<img src="http://ww.fantasydaytraders.com/eqpics/INDU-1yr-1.jpg">
 
Quote from epetrov:

In other words - break of the trendlines works fine, but just following of the trendlines - not reliable enough.

What do you think about that?
:) :)
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That is correct I look for trend line breaks.
 
Quote from Maverickz:

That is correct I look for trend line breaks.
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Trendlines will have at least 2 support points and many times 3,4 or 5 support points.......but only one break......It is better to play the trendline supports and not the breaks

Play the supports off the trendline and use the breaks as stops.
 
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