Unholy Grail to Success
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Trade School: Trendline 101
Trendlines need not be overly complicated. The premise behind their construction is rather fairly simple. You draw a line between the first two highs or two lows. Moreover, these two points must not always be wide apart; they can be as narrow as two adjacent bars or candles.
The first chart illustrates how a channel (two equidistant trendlines) is used. Although trendlines, including channels, can be used for both entries and exits, their strength lies mainly in projecting as well as identifying profit targets well in advance.
The second chart demonstrates how a wedge pattern can be formed within a channel. This is a very important concept that should not be overlooked. In a downward channel, you often encounter a bullish wedge. In an upward channel, on the other hand, you frequently encounter a bearish wedge.
Trendlines need not be overly complicated. The premise behind their construction is rather fairly simple. You draw a line between the first two highs or two lows. Moreover, these two points must not always be wide apart; they can be as narrow as two adjacent bars or candles.
The first chart illustrates how a channel (two equidistant trendlines) is used. Although trendlines, including channels, can be used for both entries and exits, their strength lies mainly in projecting as well as identifying profit targets well in advance.
The second chart demonstrates how a wedge pattern can be formed within a channel. This is a very important concept that should not be overlooked. In a downward channel, you often encounter a bullish wedge. In an upward channel, on the other hand, you frequently encounter a bearish wedge.
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Quote from steven21:
Hmmm...I am not sure about this...but a bigger distance between open and close should mean stronger momo?
Thanks for your thread
Steven,
I believe that the distance that Saliva is referring to is the length along the red line, from the open to the close of each candle.
Consider how price would have moved from open to close, as each bar was forming. This movement is shown with the arrowed red line. The length of the red line is shortest for the wide white/black candle bodies and longest for the narrow body candles (i.e. doji, etc.).
Phineas,
Perhaps I should have used "trend" in place of "momentum". Be that as it may, allow me to deconstruct to make my point more clearer.Quote from steven21:
Hmmm...I am not sure about this...but a bigger distance between open and close should mean stronger momo?
Thanks for your thread
Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.
Candlesticks with a long upper shadow, long lower shadow and a virtually equal or no body are called doji while those with small real body are called spinning tops. Doji and spinning tops represent indecision. The small real body (whether present or absent) shows little or no movement from open to close, and the wicks or shadows indicate that both bulls and bears were active during the session.
Both long upper and lower shadows indicate that buyers initially dominated during the session, and bid prices higher but sellers later forced prices down from their highs and drove prices even lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.
Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff.
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Trade School: Support and Resistance 101
A solid grasp of the concept of S/R is required in order to fully understand what a trend is. The reason is simple. Prices tend to move in a series of peaks and troughs and the trend is established once the direction of those peaks and troughs are identified. In the parlance of S/R, the peaks, or reaction highs, are called resistance and the troughs, or reaction lows, are called support.
For an uptrend to continue, each reaction low must be higher than the previous support and each reaction high must be higher than the previous resistance. By the same token, in a downtrend, each reaction high must be lower than the previous resistance and each reaction low must be lower than the previous support
In an uptrend, should price fail to penetrate above the previous resistance (Figure 1, point 5) or fails to bounce off the previous reaction low (Figure 1, point 4) serves as a warning of a potential reversal. In a downtrend, should price fail to penetrate below the previous support (Figure 2, point 5) or fails to bounce off the previous reaction high (Figure 2, point 4) serves as a warning of a potential reversal.
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Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!
A solid grasp of the concept of S/R is required in order to fully understand what a trend is. The reason is simple. Prices tend to move in a series of peaks and troughs and the trend is established once the direction of those peaks and troughs are identified. In the parlance of S/R, the peaks, or reaction highs, are called resistance and the troughs, or reaction lows, are called support.
For an uptrend to continue, each reaction low must be higher than the previous support and each reaction high must be higher than the previous resistance. By the same token, in a downtrend, each reaction high must be lower than the previous resistance and each reaction low must be lower than the previous support
In an uptrend, should price fail to penetrate above the previous resistance (Figure 1, point 5) or fails to bounce off the previous reaction low (Figure 1, point 4) serves as a warning of a potential reversal. In a downtrend, should price fail to penetrate below the previous support (Figure 2, point 5) or fails to bounce off the previous reaction high (Figure 2, point 4) serves as a warning of a potential reversal.
[edit]
Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!
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Trade School: S/R Construction
So there seems to be a great confusion amongst our ET brethren on the question of "just where the hell are you supposed to draw S/R?" One of the easiest way to accomplish this convoluted feat is by first connecting the dots from the peak to the trough. Then repeat this process until you're blue in the face, ad nauseum.
Now, take a good look at the following three charts, The first one is a nice and clean 5-minute chart of ES. The second chart has lines drawn that connect between reaction highs and reaction lows. So far, so good? The third chart is a straight forward illustration of how the damn lines can be extended horizontally from each reaction high and reaction low to form the actual support and resistance.
So there seems to be a great confusion amongst our ET brethren on the question of "just where the hell are you supposed to draw S/R?" One of the easiest way to accomplish this convoluted feat is by first connecting the dots from the peak to the trough. Then repeat this process until you're blue in the face, ad nauseum.
Now, take a good look at the following three charts, The first one is a nice and clean 5-minute chart of ES. The second chart has lines drawn that connect between reaction highs and reaction lows. So far, so good? The third chart is a straight forward illustration of how the damn lines can be extended horizontally from each reaction high and reaction low to form the actual support and resistance.
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Regarding TL construction and the two uptrend examples, first example shows connect first two swing lows before extending across, second example shows connect first two swing highs before extending across . Is this just arbitrary ?
Thanks for this gift , has makings of best thread ever on ET.
Thanks for this gift , has makings of best thread ever on ET.
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No, they're not at all arbitrary. Here's a simple rule of engagement when it comes to TL construction:
Connect the two reaction highs or the two reaction lows, whichever comes first. Once the line has been drawn between the two reaction points, then extend a parallel line to the opposite reaction point to form a channel. For instance, if you drew a TL between two reaction lows (points 1 and 3), you would draw a equidistant line at reaction high (point 2) between points 1 and 3.
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