======= Mr and mrs Savant; Interesting and also interesting that other people say Technical analysis doesnt make any sense. I would also agree with an elitetrader who looked @ some of my trendlines years ago and said you better get more than that. Michael/wiifey I wonder if those who say they dont understand technical analysis have EVER seen shoppers stampede a 50% off sale. The crowd that stampedes a genuine approximate 50% off sale or even genune 30% sale is a lot bigger than the trend lines crowd or bigger than stock/FOREX/option traders and it sure isnt limited to Chicago.
I moderate a Yahoo Group {Technical-Investor} wherein I had posted the first chart on 24th April 2005. The chart is of the Index of National Stock Exchange of India. The Trendline which earlier acted as Support has now acted as Resistance. I will post the updated chart as on date in the next post. Though, Trendlines do work, it would be illogical IMO to take it as a holy grail (or shall we say Holy Line!!!!!! ). In my opinion, other factors including Volume has to be taken into account. Cheers
Nice chart. It is a textbook illustration of several things. I view the past trend in the graphic as depicted by the red channel. In APR there is an illustration of the most basic process for position trading the index. That is, trends overlap. When a person moves from a buying and selling style of trading, he/she then begins to view trend channels differently. The shortest yellow arrow points to the confirmation of the prior reversal off the left trend channel line where the reversal transaction was made. This point in time and price also marked the beginning of the new trend which you, so far, have not annotated for some reasons. To depict the current trend is very important for trading purposes. To not depict it puts a trader at high risk. A while back there was a thread on trend exits. My comments there are really well illustrated by your posting this chart. The short yellow arrow points to a FFT (Failure to traverse) at the time of the overlap of the red channel with the new emerging channel. See how this failure is amplified for your observation by the volume characteristic. the declining volume is a powerful indicator and precursor of what is coming up for making more money. Since one reverses on the left red line and begins to make money on declining volume (an usual thing for most tradrs, I hear), the end of the declining volume in DU (Dry Up) is a statistically significant place to observe how money making velocity can increase. The retrace after the FFT and after declining volume, turns into a REVERSAL. then after this most people finally see the BO of the prior channel and they enter the new trend as a shorting entry. Usualy they are screwed right off by not making any money but having to wait until the price finally reflects off the new trend line (there but not drawn in by the poster) in a while. refer to the other post for some additional details. This post and that one will be very helpful for getting past not being able to annotate a chart such as this one. The chart is a classic and is worth adding to your journals after you annotate it to show the new trend only a month old by now. there are a couple of other indicator lines flowing along there. You can see they need their defualt settings adjusted greatly.
Here's another update to the Dow chart that I posted on 4/24. The uptrend line was hit today and formed a red top tail candle on the 15m chart. A trader could have gone to a smaller timeframe chart and had a nice scalp short. 15 to 20 points. So there's an example of a trend line "working".
Do trendlines work? Like every TA tool - they'll work (seemingly scary) great, right up until they fail miserably. It also depends huge on what trendlines (or other TAs) you're looking at. I've seen a lot of trendlines drawn manually on charts by people that don't do a good job of properly representing the trend - so they're looking at the wrong info. Same with other TA tools. I see people trying to use goofy unconventional time periods for moving averages, etc. thinking it'll give them some kind of edge. But they end up being the only person looking at that particular thing. Except for perhaps some unique support/resistance analytics or price/volume dynamic fractalizations, fundamentally the normal TA tools are about looking at the same thing that the mob is looking at and acting enough in concert with the overall group reaction to yank some cash out of the market.