Trading with Charts for Absolute Return

ASCENDING AND DESCENDING TREND LINES

Trend lines are the most followed trading tools followed by chartists. As with any other pattern recognition trading tool, investors never know in advance when trend lines will develop. This is why the charts of the desired products must be watched very closely every day.

Basic Features

To get rolling with this section, the discussion will first cover some basic features of applying ascending and descending trend lines to charts. Peaks and valleys—as mentioned—are the most important elements of chart analysis for identifying trend moves on charts and defining trend reversals as breakouts of trend lines.

Consecutive Peaks and Valleys

In an uptrend, a straight line is drawn upward with rising reaction valleys. It needs the third low to confirm the validity of the trend line. This general rule is shown in Figure 4.3.

FIGURE 4.3 Consecutive Valleys in an Uptrend

Source: www.Fibotrader.com, 2010.

In a downtrend, a straight line is drawn downward with falling reaction peaks. It needs a third peak to confirm the validity of the trend line (see Figure 4.4).

FIGURE 4.4 Consecutive Peaks in a Downtrend

Source: www.Fibotrader.com, 2010.

Nonconsecutive Peaks and Valleys

A trend line in an uptrend is a straight line drawn with rising reaction valleys. It ...