Technical analysis of financial markets does not have to be
complicated. Here are EWI, our main focus is on Elliott wave
patterns in market charts, but we also employ other tools —
like trendlines.
A trendline is a line on a chart that connects two points.
Simple? Yes. Effective? You be the judge — once you read the
free 14-page Club EWI report by EWI’s Chief Commodity Analyst
and Senior Tutorial Instructor Jeffrey Kennedy.
Enjoy this free excerpt — and for details on how to read
this report in full, free, look below.
Trading the Line — 5 Ways You Can Use Trendlines to Improve
Your Trading Decisions
(Free
Club EWI report, excerpt)
Chapter 1
Defining Trendlines
Before I define a trendline, we need to identify what a line
is. A line simply connects two points, a first point and a
second point. Within the scope of technical analysis, these
points are typically price highs or price lows. The significance
of the trendline is directionally proportional to the importance
of point one and point two. Keep that in mind when drawing
trendlines.
A trendline represents the psychology of the market, specifically,
the psychology between the bulls and the bears. If the trendline
slopes upward, the bulls are in control. If the trendline slopes
downward, the bears are in control. Moreover, the actual angle
or slope of a trendline can determine whether or not the market
is extremely optimistic, as it was in the upwards sloping line
in Figure 1-1 or extremely pessimistic, as it was in the downwards
sloping line in the same figure.
You can draw them horizontally, which identifies resistance
and support. Or, you can draw them vertically, which identifies
moments in time. You primarily apply vertical trendlines
if you’re doing a cycle analysis.
Chapter 2
Drawing Trendlines
In this section, I’ll show you how I draw trendlines.
I’ll start with the most common, simple way to draw
them…
For more free trading lessons on trendlines, download Jeffrey
Kennedy’s free 14-page eBook, Trading
the Line – 5 Ways You Can Use Trendlines to Improve Your
Trading Decisions. It explains the power of simple
trendlines, how to draw them, and how to determine when the
trend has actually changed. Download
your free eBook.
This
article was syndicated by Elliott Wave International and
was originally published under the headline Trendlines: How a Straight Line on a Chart Helps You Identify the Trend.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts led by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.
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