For a Wyckoffian a trend actually begins w/some kind of Trading-Range first, itself preceded by a trend ending w/climactic behavior that results in that TR, as price cycles from high-volatility (trend) to low-volatility (consolidation, TR). The TR prepares for the upcoming trend as either accumulation/re-accumulation or distribution/re-distribution. A TR, like a trend, should meet certain criteria. As the TR evolves into a trend, one tries to use the price behavior w/in the TR to gauge the strength and validity of the trend. Ok, but this thread is not about TR's. For students of Wyckoff, a down trendline is defined by the classic criteria of 2 significant rally highs, the "supply line" in a downtrend, preferably on strong vol and good spreads. This is great effort vs little result, as the seemingly strong rally is unable to break the downward momentum. A parallell "demand line" can be placed at a significant low in between the intial 2 points of the supply line, this forms a channel. A well-defined, valid channel can reveal momentum and ob/os conditions w/o the need of bottom-pane indicators. If price reacts off the supply line but then gets to only the halfway point of the channel, well-off the demand line, before it rallies back to the supply line, then perhaps momentum is shifting in the trend as supply is waning. Or if the reaction is sharp, it traverses the channel from supply line to demand line much faster than it did vice-versa on the previous rally, then obviously momentum is still strong to the supply-side. Or this could be the beginning of climatic behavior. Ideally, a violation of a supply dtl should occur following the Selling Climax, as the Trading-Range forms. Price consolidates and goes sideways, as volatility cycles from high to low (evident by contracting volume, tighter spreads, and narrow price swings), and the supply line of the channel is broken, preferrably on a wide spread closing near the high on strong vol. You can draw lines evvvvvvverywhere on a chart, as many do. One has to find which matter. As w/any support/resistance one must watch the price action at the lines, so the lines drawn will be valid, consistent, according to the criteria used to interpret changes of character in a market from trend-to-consolidation and vice-versa. Otherwise, they're just more linessss on a chart, signifying nothing... http://www.streamload.com/hcour/FX/ED_TL.GIF On the EUR/USD 5-min a supply line is drawn at A & B, then the demand line at C. A sharper momentum channel w/in the larger can be drawn at B, D, & then E. At F price is os on both channels, this bar closes near the high on strong vol at previous s/r at X to the left, possibly climactic. At G an Ease-of-Movement bar breaking the B-D supply line, the widest spread on this chart since the beginning of the downtrend on the rally following C. From here price gives little back on a shallow retracement, spreads and candle-bodies narrow and volume contracts as price forms an apex at H, where there is a breakout of the A-B supply line on an EOM, widest spread on the chart, back to resistance at C, which doesn't hold. As of this chart lots of upthrusting tails and generally narrowing of spreads as we get to resistance at A/B. H
I remember reading in an ebook called Reversal Magic that if you draw a TL connecting 2 highs or 2 lows and then draw a horizontal line at the high or low beween those 2 points, the point where they intersect is a reversal point. Has anyone else tried this with any accuracy?
forex: There's a discussion of reversal magic on the 'trade 2 win' forum, including a long post by the creator of the technique. I don't have it or use it. Thru