Trendlines can always help identify good entry and exit points, and where to place a stop loss. But trend lines are best not used alone, but combined with other methods of technical analysis. They will be a great addition to your trading arsenal.
Does trendline work?
- Thread starter GloriaBrown
- Start date
Trendlines
The examples above show a constant level prevents an asset's price from moving higher or lower. This static barrier is one of the most popular forms of support/resistance, but the price of financial assets generally trends upward or downward, so it is not uncommon to see these price barriers change over time. This is why the concepts of trending and trendlines are important when learning about support and resistance.
When the market is trending to the upside, resistance levels are formed as the price action slows and starts to move back toward the trendline. This occurs as a result of profit-taking or near-term uncertainty for a particular issue or sector. The resulting price action undergoes a "plateau" effect, or a slight drop-off in stock price, creating a short-term top.
Many traders will pay close attention to the price of a security as it falls toward the broader support of the trendline because, historically, this has been an area that has prevented the price of the asset from moving substantially lower. For example, as you can see from the Newmont Mining Corp (NEM) chart below, a trendline can provide support for an asset for several years. In this case, notice how the trendline propped up the price of Newmont's shares for an extended period of time.
:max_bytes(150000):strip_icc():format(webp)/dotdash_Final_Support_and_Resistance_Basics_Aug_2020-03-d64134df5e2145a1b88b4476ad4f610e.jpg)
Image by Sabrina Jiang © Investopedia 2020
On the other hand, when the market is trending to the downside, traders will watch for a series of declining peaks and will attempt to connect these peaks together with a trendline. When the price approaches the trendline, most traders will watch for the asset to encounter selling pressure and may consider entering a short position because this is an area that has pushed the price downward in the past.
The support/resistance of an identified level, whether discovered with a trendline or through any other method, is deemed to be stronger the more times that the price has historically been unable to move beyond it. Many technical traders will use their identified support and resistance levels to choose strategic entry/exit points because these areas often represent the prices that are the most influential to an asset's direction. Most traders are confident at these levels in the underlying value of the asset, so the volume generally increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.
The examples above show a constant level prevents an asset's price from moving higher or lower. This static barrier is one of the most popular forms of support/resistance, but the price of financial assets generally trends upward or downward, so it is not uncommon to see these price barriers change over time. This is why the concepts of trending and trendlines are important when learning about support and resistance.
When the market is trending to the upside, resistance levels are formed as the price action slows and starts to move back toward the trendline. This occurs as a result of profit-taking or near-term uncertainty for a particular issue or sector. The resulting price action undergoes a "plateau" effect, or a slight drop-off in stock price, creating a short-term top.
Many traders will pay close attention to the price of a security as it falls toward the broader support of the trendline because, historically, this has been an area that has prevented the price of the asset from moving substantially lower. For example, as you can see from the Newmont Mining Corp (NEM) chart below, a trendline can provide support for an asset for several years. In this case, notice how the trendline propped up the price of Newmont's shares for an extended period of time.
Image by Sabrina Jiang © Investopedia 2020
On the other hand, when the market is trending to the downside, traders will watch for a series of declining peaks and will attempt to connect these peaks together with a trendline. When the price approaches the trendline, most traders will watch for the asset to encounter selling pressure and may consider entering a short position because this is an area that has pushed the price downward in the past.
The support/resistance of an identified level, whether discovered with a trendline or through any other method, is deemed to be stronger the more times that the price has historically been unable to move beyond it. Many technical traders will use their identified support and resistance levels to choose strategic entry/exit points because these areas often represent the prices that are the most influential to an asset's direction. Most traders are confident at these levels in the underlying value of the asset, so the volume generally increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.
You have to have very good intuition and follow markets for a long period of time to see if price exhibits some anomaly at certain levels, for example round numbers. For example, it works on crypto because many base their decisions looking at some levels which create self-fulfilling prophecy effect.
Trend lines work until they do not. See any trend-line break since the beginning of time. I can take any poster's chart anywhere on this forum, and draw a trend-line break that seems MAGICAL, once the line is drawn.
But nobody ever draws those lines into the future. It's all BS.
You are welcome.
But nobody ever draws those lines into the future. It's all BS.
You are welcome.
So actually this was a little sloppy for trading. We have made a new high in CL which is oil futures. I am looking to get in on scalp trades on continuation of the trend.
Price was pulling back. However, my 1st entry could have been better timed to go in where resistance may become support not where I got in.
So 1st level did not hold, I wanted to add to the position around 10 ticks lower closer to main support line. Stop could be somewhere below.
Now after the 2nd entry I am now trading 2 contracts. If I had better timing I could have gone long 2 contracts closer to main support level or on positive price movement shown by green candles that are above my entry level.
So at this point I wanted to take 1 contract off a BE so if needed I could add it back on if price continued to go to lower levels of support.
Remember real trading is a probability matrix. Some people scoff at TA since is not 100% predictive but you don't need a 100% win rate to achieve success. In an uptrend, you can be a little sloppy and still win.
Also, note upward price in oil is built on fundamentals. More people are going back to work and driving cars. More traffic. More gas is needed, more oil is needed. Supply is being checked by a cartel which is able to monopolize price by setting quotas on what it's member nations are allowed to sell.
You're correct. Trendlines work until they don't. Make money when they work. Have your stop in place for when they don't. This was from $ATOS today. That trendline was drawn from Wednesday and it continued into the future.