Chapter 10
Drawing Trendlines
IN THIS CHAPTER
Connecting the dots
Knowing how to draw support and resistance lines
Judging breakouts of support and resistance
Acquainting yourself with internal trendlines
The human brain instinctively seeks order and creates meaning from patterns. When looking at a chart of a security, you may think you see a pattern of directionality — trendedness — but is it really there? Or are you seeing a pattern when randomness is all there is?
To be sure, you need to connect the dots by drawing a visible line along what you think is the trend. A trendline is a straight line that starts at the beginning of the trend and stops at the end of the trend. Today everyone uses software to draw trendlines, but note that you have to do the drawing; websites and charting software won’t do it for you.
In this chapter, I cover support and resistance, two of the most important concepts in technical analysis, and also the linear regression, which depicts pure, true trend.
Looking Closely at a Price Chart
When you take your pencil (or cursor) to draw a line, sometimes ...
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