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Trader Vic's Trendline
- Thread starter KevinK
- Start date
Here, give it a shot Kevin:
Before going on to Datek Charts, we review an important tool of simple technical analysis. The well known US based trader Victor Sperandeo discussed how to correctly draw a trendline in his Trader Vic books written in the late 80s - early 90s.
1. Select the period of consideration: the long term (months to years), the intermediate term (weeks to months), or the short term (days to weeks).
2. For an uptrend within the period of consideration, draw a line from the lowest low, up to the highest minor low point PRECEDING THE HIGHEST HIGH such that the line DOES NOT PASS THROUGH PRICES IN BETWEEN THE TWO LOW POINTS. Extend the line upward past the highest high point.
3. For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point PRECEDING THE LOWEST LOW such that the line DOES NOT PASS THROUGH PRICES IN BETWEEN THE TWO HIGH POINTS. Extend the line downward past the lowest high point.
Suggestions for the first time:
Print off some Yahoo or whatever charts for one of the big indexes â perhaps a 5 Day, 3 Month and 1 or more years. I suggest you use a line chart for convenience.
In the Uptrend (2 above) you have your ruler BELOW the chart line â you are drawing below the action.
In the Downtrend (3 above) you have your ruler ABOVE the chart line â you are drawing above the action.
Simply reread the section above word for word and you will have it in no time.
Before going on to Datek Charts, we review an important tool of simple technical analysis. The well known US based trader Victor Sperandeo discussed how to correctly draw a trendline in his Trader Vic books written in the late 80s - early 90s.
1. Select the period of consideration: the long term (months to years), the intermediate term (weeks to months), or the short term (days to weeks).
2. For an uptrend within the period of consideration, draw a line from the lowest low, up to the highest minor low point PRECEDING THE HIGHEST HIGH such that the line DOES NOT PASS THROUGH PRICES IN BETWEEN THE TWO LOW POINTS. Extend the line upward past the highest high point.
3. For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point PRECEDING THE LOWEST LOW such that the line DOES NOT PASS THROUGH PRICES IN BETWEEN THE TWO HIGH POINTS. Extend the line downward past the lowest high point.
Suggestions for the first time:
Print off some Yahoo or whatever charts for one of the big indexes â perhaps a 5 Day, 3 Month and 1 or more years. I suggest you use a line chart for convenience.
In the Uptrend (2 above) you have your ruler BELOW the chart line â you are drawing below the action.
In the Downtrend (3 above) you have your ruler ABOVE the chart line â you are drawing above the action.
Simply reread the section above word for word and you will have it in no time.
Referring to the long, medium and short terms discussed above in drawing correct trendlines, this is Sperandeo's criterion to determine the change in trend:
1. The trend must be broken â prices must cross the trend line drawn on the chart.
2. Prices must stop making higher highs in an uptrend, or lower lows in a downtrend. For example, in an uptrend after a minor sell-off, prices may rise again, but fail to carry above the preceding high point or barely break the high and then fail. The converse would happen in a downtrend. This is often described as a âtestâ of the high or low point, and usually, but not always occurs when a trend is in the process of changing. When it doesnât occur, price movements are almost always driven by important news that causes prices to gap up or down and move erratically with relation to the ânormalâ price movement.
3. Prices must go above a previous short term minor rally high in a downtrend, or below a previous short-term minor sell-off low in an uptrend.
At the point where all three of these events have occurred,
there exists the equivalent of a Dow Theory confirmation of a change of trend. Either of the first two conditions alone is evidence of a probable change in trend. Two out of three events increases the probability of a change of trend. And three out of three defines a change of trend.
Good luck!
Geo.
1. The trend must be broken â prices must cross the trend line drawn on the chart.
2. Prices must stop making higher highs in an uptrend, or lower lows in a downtrend. For example, in an uptrend after a minor sell-off, prices may rise again, but fail to carry above the preceding high point or barely break the high and then fail. The converse would happen in a downtrend. This is often described as a âtestâ of the high or low point, and usually, but not always occurs when a trend is in the process of changing. When it doesnât occur, price movements are almost always driven by important news that causes prices to gap up or down and move erratically with relation to the ânormalâ price movement.
3. Prices must go above a previous short term minor rally high in a downtrend, or below a previous short-term minor sell-off low in an uptrend.
At the point where all three of these events have occurred,
there exists the equivalent of a Dow Theory confirmation of a change of trend. Either of the first two conditions alone is evidence of a probable change in trend. Two out of three events increases the probability of a change of trend. And three out of three defines a change of trend.
Good luck!
Geo.
From what I remember in his book...
This intraday chart was the only one I had handy but it shows the point. The down trend line is in purple. The horizontal purple line is the point that it should not cross after there has been an upside break. I think it was his strategy to buy on the higher low. Vice versa for selling.
Hope it helps.
This intraday chart was the only one I had handy but it shows the point. The down trend line is in purple. The horizontal purple line is the point that it should not cross after there has been an upside break. I think it was his strategy to buy on the higher low. Vice versa for selling.
Hope it helps.
Attachments
DTK, I'm thinking it would go from where you started through the low tail on 11:50 hours red candle? On the theory that tail is the lowest low below the highest high? Comments anyone.
Trying to visualize a ruler... .
Geo.
Trying to visualize a ruler... .
Geo.
The highest high is the highest high only in retrospect. Drawing a trendline in retrospect in strict adherence to the rules often means -- as in this case -- leaving the trend entirely in order to draw a "legitimate" line.
Drawing the trendline in real time requires several lines in advance of the blue line drawn in the posted chart. The first is drawn below the 10:05 (+/-) low once there is a higher high (10:20). Once a swing point has been established at 10:55 (more or less) and a higher swing point occurs six bars later, another trendline can be drawn to track this more acute angle. When this trendline is broken, there is a change in trend and price bases, testing the last swing low. When price then make a higher high at 12:10, a new trendline can be drawn under the swing low at 11:55 (I may be off a bar on these times). That line is then broken, a lower low is made, and the trend reverses.
The point is that higher highs and lower lows are tracked in real time. Therefore, trendlines are rotated in and out according to whether or not those higher highs/lower lows are made (if they aren't, then there's no trendline). Since a trendline is supposed to track the trend, it has to follow it. Otherwise, it is of little practical value.
Drawing the trendline in real time requires several lines in advance of the blue line drawn in the posted chart. The first is drawn below the 10:05 (+/-) low once there is a higher high (10:20). Once a swing point has been established at 10:55 (more or less) and a higher swing point occurs six bars later, another trendline can be drawn to track this more acute angle. When this trendline is broken, there is a change in trend and price bases, testing the last swing low. When price then make a higher high at 12:10, a new trendline can be drawn under the swing low at 11:55 (I may be off a bar on these times). That line is then broken, a lower low is made, and the trend reverses.
The point is that higher highs and lower lows are tracked in real time. Therefore, trendlines are rotated in and out according to whether or not those higher highs/lower lows are made (if they aren't, then there's no trendline). Since a trendline is supposed to track the trend, it has to follow it. Otherwise, it is of little practical value.
How do you trade off trendlines anyway? I've yet to hear anyone claim : "i trade off trendlines and make money". seriously.
Quote from Lamont_C:
The highest high is the highest high only in retrospect. Drawing a trendline in retrospect in strict adherence to the rules often means -- as in this case -- leaving the trend entirely in order to draw a "legitimate" line.
Drawing the trendline in real time requires several lines in advance of the blue line drawn in the posted chart. The first is drawn below the 10:05 (+/-) low once there is a higher high (10:20). Once a swing point has been established at 10:55 (more or less) and a higher swing point occurs six bars later, another trendline can be drawn to track this more acute angle. When this trendline is broken, there is a change in trend and price bases, testing the last swing low. When price then make a higher high at 12:10, a new trendline can be drawn under the swing low at 11:55 (I may be off a bar on these times). That line is then broken, a lower low is made, and the trend reverses.
The point is that higher highs and lower lows are tracked in real time. Therefore, trendlines are rotated in and out according to whether or not those higher highs/lower lows are made (if they aren't, then there's no trendline). Since a trendline is supposed to track the trend, it has to follow it. Otherwise, it is of little practical value.
Quote from sunnyskies:
How do you trade off trendlines anyway? I've yet to hear anyone claim : "i trade off trendlines and make money". seriously.
There is a bunch of methods which accomplish that. I have developed some of them so I know what i am talking about. Start with a free demo of Drummond geometry and if you like to do something like that , tinker with it and within a two years you should be able to come up with your own trendline trading method . Big advantage of geometrical methods is that you can use them on any market without adjusting for different price data .