That's like saying I don't know how to predict the future by throwing runes on the floor. It might be true but who cares ,except you perhaps. If throwing runes or drawing trendlines helps you in some way feel more confident in your market choices good for you.
Trendlines can do many many things. What you as a trader find and works for you is what is important, obviously. I like connecting highs in downtrends and lows in uptrends. Very basic. I have found that these types of trendlines have created important support and resistance areas MANY times. So for me they work for S/R. Some traders connect the highs in an uptrend and find valuable information for them. I suggest drawing trendlines over and over until you find how they eventually work for you. Unfortunately I don't think backtesting of trendlines works very well because it is all hind sight. You have to see the lines work as price progresses. If you can back your charts up and draw trendlines as you advance your charts and see progressive price action reacting to your lines, that is one option other than doing it day after day to learn. Let's see what happens on the attached 15m chart of the Dow in the upcoming days.
I think what Walther is suggesting here is that Fractals and Human nature can be merged. I will not discuss proprietary information that is not mine, so please do not PM. I just wanted Walther to know, I know what he is talking about. Michael B.
in the LU example that was posted, the significance is that since the price just hit the channel trendline, it is extremely likely to stall or reverse there, and therefore the new low just created is very likely to be a headfake. i.e. --> definitely don't short this new low, and expect a 2B setup to form. a very aggressive trader can even go long, right here. and by the way - this is exactly what actually happened, now that i brought up LU's up to date daily chart. i promise you that i brought it up after writing the lines above, not before. so, here's yet another one of consistent and extremely frequent examples of trendlines' significance. my original question remains - "why do they work - why price halts at trendlines?". people gave some answers but i could not feel satisfied by them. so just provoking you guys for further thoughts on this question.
In this day and age, that's pretty much it in a nutshell. Support and resistance lines are "obvious" entry/exit points that are almost always tested/broken -- whether or not they consistently provide profitable setups is questionable imo.
The chart displays Blue Standard Error Channel (SEC), White Fibonacci Fan, single Black trendline with pivot points Red circled, Blue Fibonacci Price Levels, Red Gann Fan. I prefer using the SEC as it projects price movement as a pathway, channel; at the end of the movement the price 'drops out' of the channel confirming the trend end, as well as the price rising and falling within the channel. The Fibo Fan is also quite good provided the 'throw' or distance from the start point produces enough separation of the fan lines. Don't use MetaStock's Gann Fan since the user can't enter angle degrees. 50 cent: "why do they [trendlines] work - why price halts at trendlines?" From my point of view, trendlines work 'after-the-fact' â after the price has changed direction; why the price halts at a trendline is because it hit a fibo level. The Fibonacci ratio is an elastic constant. First drawn on 'Wave 1' â any W1, that ratio measure appears to remain constant throughout the whole '5 Wave' price movement that follows. Significant price 'turns' throughout the movement appear to occur at fibo price levels rather than not occurring at the fibo levels. Other trendlines are Murrey Math lines, an adaption of Gann theory - division of the price by 1/8ths related to divisions of the 360 degree circle, Gann's 1/1 1/3 1/4 etc angles: http://www.murreymathtrading.com/ see also Advanced Get's Gann Box below.
A not very good example of the Gann Box, but it's amazing how the price seems to follow the lines especially since the box is drawn once, in advance, based on the first L-H.