How do I know if I've drawn a correct support line? This might sound like a dumb question since you're just drawing a line but is there a certain criteria besides connecting two lows? I have a chart of the ES daily with a support line drawn.
1) You drew the trendline from the low of the 2nd market day in June to the low of the 19th market day in July. 2) Instead of the 19th market day in July, you could have used the low of the 9th market day in June, the low of the 18th market day in June or the low of the 10th market day in July. :eek: 3) Therein lies the potential "ambiguity".
That is the correct support line. As long as the trendline is drawn through the lowest swing lows and doesn't intersect any candles inbetween it is correct. Just read some trading books and they will tell you this. How strong the trendline is depends upon how many people recognize it's existence. The pro's love to pop the market under/above these trendlines to take out the stops and trap shorts/longs before ripping it back the other way.
Support line hindsight-bias aside, if you can tell me tomorrow's settlement of the eMini S&P-500 within 5 ticks, then I'll believe you have an iota of "master" about you.
Drawing a trend line under a corrective (not impulse) wave is, as you found, a messy proposition. More utility can be had by observing the price pivots; i.e. a series of higher lows & higher highs = up trend still in effect, in this case. A characteristic of corrective waves is lethargy and volatility - they go nowhere yet thrash like a fish in a net. You want to trade the fish that swims. So if you can imagine yourself being the price, use your mind's eye to visualize when the fish gets thrown back into the water and starts to take off in a bolt of panic........ this is your cue
As you can see from the price labels of the "higher lows" in the June-August uptrend: connecting 1309.27 to 1266.74, or 1325.41 to 1266.74, or 1329.24 to 1266.74 will give you 3 different angled lines. Also, none of those angled lines predict where the next "higher low" actually came to be. This is why I've never put much faith in angled trend lines, and always felt them to be in the "self-fulfilling prophesy" category of Technical Indicators. IMO you still can't beat Higher Highs and Higher Lows for Trends, and horizontal lines for Support and Resistance levels. The price goes up and down vertically, not on a slant! But everyone uses them. Am I missing something? Is my head on tilted or is it on too straight?
There are simple answers but not a comprehensive answer that is simple. The reason being there are a number of different drawing styles that are constructed using different structural points and are all traded in different ways. What you show is a classic trend line that needs a 3rd point for confirmation. However if you look at the tops you find that your line is a mirror of the top resistance so you have a proven structural reason for your line placement and hence no need for a 3rd point to confirm the trend line support. Then you have a rising flag channel with a downward break as the most likely resolution. Lines positions can be located using a variety of price points, moving averages, mathematical formulas, price swing degrees, patterns etc. It is just different placement and styles. Learn one, make it work and then you might want to add to your TA tools.
Lots of traders don't use them for much the same reason as yourself. But if you look at a chart, PA tends to travel at a slant and vertical movement cannot be sustained. So perhaps you might want to reconsider how PA uses lines to make its progress? Angulars are extremely powerful but are not easily mastered whereas S&R is much easier to pick up. Having said that, many traders are lost on S&R and even pay for someone to tell them the "magic levels".