I see some threads relating to trendlines, but can’t help feel they are misleading as to their effectiveness.
In order to determine a trendline, you need at least 2 points of interest, usually peaks and troughs,
But, as time elapses, these trendlines can be broken, and new ones established.
Using the chart uploaded as a guide, I have marked a yellow box starting point, and 3 possible trendlines.
My main point is, the beginning of the trendline is NOT at the yellow box, but at the red/blue/green horizontal lines (troughs).
The trader may end up with a misleading belief that he/she could have trade from the yellow box, as the eye is drawn along the lines, but in truth at the horizontal lines, as the trader could not have known the relevance of the line until the trendline is drawn.
Isnt this no different from lagging indicators?
Just a discussion point, as I have never been able to trade trendlines, as I can’t work out whether to draw a new trendline, or treat the break as a reversal event.
You make good points on trendlines. I don’t use them as I also find them arbitrary and unhelpful so I will also be happy to hear some users giving guidance in their support.
Trend lines are not perfect, there would normally be some leeway at zones. Don’t start at the bottom - start the red line on the first high on the bullish trend. The blue line is defunct because the lows just don’t line up. The down wave trend is much clearer. You can draw a two line channel from the green high and low point to the bottom of the chart.
I was mentored ten years ago by a young trader who advised that his plan required four, sometimes five confluences of indicators before he would enter a trade. He had a journal showing a 80% win / 20% loss that was impressive. On further discussion, he estimated he had spent around 1,000 hours during the past year to make a profit of £4,000. Whilst his results could not be disputed, we realized that his effective rate of pay was £4 an hour, and given that I was paying him six times that rate for part time consulting, he did pursue his desired career as a project manager and ended up after 3 years earning over £50K per year in a paid job. I asked him last year why he didn’t trade Forex any more. He said he could not afford the time for the relative rewards, and preferred to think about his Google stock options.
Maybe I dont understand what you’re trying to say so I’ll answer and you can clarify.
The beginning of the trendline is where you want it. So yes it can be at the yellow box.
No you couldnt have traded from the yellow box as that wouldve been your starting point. You then joined the yellow box to swing lows and extended the trendline.
It’s not lagging because when you extend it you have areas that could predict the future bounces or breaks and reversals.
This is where you’re going wrong. Ask yourself why are you drawing the trendline? Are you drawing it because you want to trade a later bounce on it? Or do you want to trade the break and reversal? Higher timeframe trendlines may be stronger just because it might show area where the larger institutions are trading. Why not use a counter trendline and wait for a breakout eg on a uptrend you are only drawing down sloping trendlines and have a limit order so if price breaks it and continues up it tags you in? Opposite on downtrend.
I did used to think myself that unless we could all agree on a trend-line’s location it couldn’t mean anything, but the point you have well made is that this isn’t key, its where the trader draws them in relation to his strategy which is important.
