What is the rationale behind trendlines?

[CyJackX]

I accept that there are no guarantees whatsoever, and that any answers or explanations can be wrong or nonsensical and must be taken with a grain of salt.

Despite that, I still assume that if I ask a roomful of traders "How would you explain why trendlines work or don't work?" that there'd be some semblance of an explanations, no matter how varied. I don't want an absolute answer, I'll take a dozen relative answers. It's just interesting to me, because you could probably find someone who defends Elliot wave or Fibonacci with their own reasons yet the rationalization for trendlines seems relatively sparse.

 

[userque]

I accept that there are no guarantees whatsoever, and that any answers or explanations can be wrong or nonsensical and must be taken with a grain of salt.

Despite that, I still assume that if I ask a roomful of traders "How would you explain why trendlines work or don't work?" that there'd be some semblance of an explanations, no matter how varied. I don't want an absolute answer, I'll take a dozen relative answers. It's just interesting to me, because you could probably find someone who defends Elliot wave or Fibonacci with their own reasons yet the rationalization for trendlines seems relatively sparse.

I agree that it's interesting. I would love to ponder the 'why's' and 'wherefore's' of science all day long. I just don't have the time.

These days, regarding the markets, I ask...does it work? And...how can I profit from it? I don't spend too much time with the 'why' question anymore. But that's just me.

 

[profitlocker]

The tools are just a matter of personal comfort, and all aim to accomplish the same goal. The core element of successful short-term trading is having the rare ability to identify bull and bear traps, and implementing a trade plan that puts you on the opposite side and also minimizes losses and maximizes gains.

 

[i960]

Despite that, I still assume that if I ask a roomful of traders "How would you explain why trendlines work or don't work?" that there'd be some semblance of an explanations, no matter how varied.

As I said before it's just a indirect measurement based on level to level. If you look at things with a volume profile you'll also see where reversals tend happen at low and high volume nodes in a fairly repeatable pattern when the trend is still present. A lot of times, but not always, these VNs will have a correlation with fib levels as well. External market moving news/figures being released as regular timed periods can have an additional influence. But mostly it's interaction around levels (price usually has to go somewhere at a certain point).

Your job is to watch how price behaves *around* these potential reversal areas (at the timeframe(s) you follow) and base entry or exit decisions off of how the market reacts. They're not 100% predictive dousing rods but while the trend is still in play they're more *likely* to work than not work and that's all that matters.

 

[Simples]

The original question is overly vague. If I were to ask, "What is the rationale behind the Moon?" Would you really know what I'm actually asking?

Contrast asking, "What is the rationale behind the belief that the Moon is made of cheese?" This question is much less vague. It makes more clear what I'm actually wanting to know.

It answers the "Rationale with respect to what?" question.

Here's another vague question, for example: "What is the rationale behind line charts?"

You can't break a WTF with a WTF, sorry..

 

[Mtrader]

As I said before it's just a indirect measurement based on level to level. If you look at things with a volume profile you'll also see where reversals tend happen at low and high volume nodes in a fairly repeatable pattern when the trend is still present. A lot of times, but not always, these VNs will have a correlation with fib levels as well. External market moving news/figures being released as regular timed periods can have an additional influence. But mostly it's interaction around levels (price usually has to go somewhere at a certain point).

It is up to each trader to do research and find out what is best suited for him as a guidance in trading. So there is no overall best system that works for everybody.
To me trendlines are completely useles, as pure math gives me a highly more performant system to trade. It is also more suited for my personality. But for another trader is can be just the opposite.
All depends of your knowledge of the different systems, and that will decide which one to take.

 

[Simples]

As I said before it's just a indirect measurement based on level to level. If you look at things with a volume profile you'll also see where reversals tend happen at low and high volume nodes in a fairly repeatable pattern when the trend is still present. A lot of times, but not always, these VNs will have a correlation with fib levels as well. External market moving news/figures being released as regular timed periods can have an additional influence. But mostly it's interaction around levels (price usually has to go somewhere at a certain point).

View attachment 166552

Your job is to watch how price behaves *around* these potential reversal areas (at the timeframe(s) you follow) and base entry or exit decisions off of how the market reacts. They're not 100% predictive dousing rods but while the trend is still in play they're more *likely* to work than not work and that's all that matters.

This is sort of where the magic of volume profile breaks down, as with anything else. If important to watch what price does, both in low volume nodes, and high volume nodes, then who's to say you can't watch how price reacts between "nodes"? Especially if/since these area are "zones" anyway. Also, if you notice in your chart, you're missing many LVNs and HVNs, so they can also be said to be subjective and perhaps even hindsight.

That said, the statistical bulge, call it value area or whatever, do have properties of congestion, statistically. But, the more efficiently price trades in that area, your trend is really weakening. It's sort of a catch-22. Not saying it's not tradable or potentially useful, but there's some conflict in how price behaves.

Then, what matters is to watch how price behaves. Period. What you're buying is relatively higher price levels and how price behaves after reaching relatively higher prices. You may constrain yourself to SR-zones, but that may limit your trading. I think that may work better for keeping manual discretion simple, though backtest and automation may have some limited performance.

Simples.

 

[qxr1011]

Moving averages are a result of mathematical calculations. That's objective. Math is objective

just a second...

any results of the formula in math is subjective to its parameters - plug-in different parameters into the formula and one will get a different result from that formula

===For every human being a 10 days MA is identical; now, tomorrow and even in 100 years.===

the speech is exactly what it should be 10 days, 9 days or 29 days

and what influenced that choice of parameters, it is subjective to what?

i claim that the chosen parameter for MA following the trend (why else would we use MA) should be influenced the trend itself (based on its definition)

if i understand just21 correctly, he advises the opposite - to define trend (trendline) based on the chosen period of MA , i.e. trendline subjective to MA

 

[qxr1011]

i.e. the thesis for support/resistance is that high volume areas continue to be areas of high activity for so-and-so reasons.

i frankly do not buy this explanation

Sure, "limiting" may have been poor word choice. Perhaps "significant" may be better. Support/Resistance are not "limiting" but are "significant." I'm just wondering what the logical rationale is for trendlines, if there is any besides self-fulfilling prophecy.

why?

i like "limiting" in a sense that Support/Resistance prevent price from going further

for a while i did considered trendlines as sort of the Support/Resistance... but then i changed my mind

break out of the trendlines is significant, but no these are no Support or Resistance .

trendlines are just the borders of the trend, not the limitations of it...

the way to properly draw them greatly depends of the definition of the trend.

that definition of the trend is a foundation of any trading method

i commend you for looking for the causes.. as some one said "real knowledge is the knowledge of causes, not the effects"

but i think personally in trading its a waste of time

 

[Mtrader]

just a second...

any results of the formula in math is subjective to its parameters - plug-in different parameters into the formula and one will get a different result from that formula

===For every human being a 10 days MA is identical; now, tomorrow and even in 100 years.===

the speech is exactly what it should be 10 days, 9 days or 29 days

and what influenced that choice of parameters, it is subjective to what?

i claim that the chosen parameter for MA following the trend (why else would we use MA) should be influenced the trend itself (based on its definition)

if i understand just21 correctly, he advises the opposite - to define trend (trendline) based on the chosen period of MA , i.e. trendline subjective to MA

We are apparently speaking of different things and different ways to use it. I cannot give more clarification as I don't want to give away anything.

If you calculate the 10 days MA ES of the close of last friday, this calculation will stay the same till eternity. Even if you calculate it again in 2000 years, the 10 days MA ES of the close of last friday will still be the same.
But ask someone to draw, with an interval of 5 years, the trendlines of last friday, and they will all be different, you will never have exactly the same values on the trendline.