Chapter 13

Trend Lines

Abull trend line is a line drawn across the lows of a bull trend, and a bear trend line is drawn across the highs of a bear trend. A trend line is most helpful when looking for entries in the direction of the trend on pullbacks and in the opposite direction after the trend line is broken. Trend lines can be drawn using swing points or best fit techniques such as linear regression calculations or simply quickly drawing a best approximation. They also can be created as a parallel of a trend channel line and then dragged to the trend line side of the bars, but this approach is rarely needed since there is usually an acceptable trend line that can be drawn using the swing points. Sometimes the best fit trend line is drawn just using the candle bodies and ignoring the tails; this is common in wedge patterns, which often do not have a wedge shape. It is not necessary to actually draw the line when it is obvious. If you do draw a line, you usually can erase it moments after you verify that the market has tested it, because too many lines on the chart can be a distraction.

Once a trend has been established by a series of trending highs and lows, the most profitable trades are in the direction of the trend line until the trend line is broken. Every time the market pulls back to the area around the trend line, even if it undershoots or overshoots the trend line, look for a reversal off of the trend line and then enter in the direction of the trend. Even after a trend ...

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