Given that the original Straight Line thread is now well over a thousand posts long and given the number of sidetracks it has taken, I'm spinning off what I hope will be a more focused thread, one which is centered on the principles of basic price movement trading. There's nothing new here, but it's one hell of a lot shorter, so perhaps it will be easier to understand. This is, after all, not that complicated. The complications arise when ego and fear intrude. The first step is to determine the current trend of the market (Wyckoff): Links will be provided in the event that the chart evaporates: http://www.elitetrader.com/vb/attachment.php?s=&postid=3844512. This has been an issue. The second step is to determine one's place in the current trend: http://www.elitetrader.com/vb/attachment.php?s=&postid=3844513 The third step is to determine the proper timing of one's entry into whatever it is he's trading. There are three strategies: reversals, retracements, and breakouts. Reversals are generally employed at the upper and lower limits of trading ranges. Breakouts are traded when price breaks out of one of these trading ranges. Retracements are the first pullbacks which take place after a breakout. The fourth step is to manage the trade by monitoring the balance between buying pressure and selling pressure, exiting when the balance is no longer in your favor. And here we go. http://www.elitetrader.com/vb/attachment.php?s=&postid=3844514 Q: [Do] you just fade the levels? A: Nothing's faded. When the line is broken, price is given a chance to retrace. As long as it doesn't retrace more than 50%, the trader stays in the trade. Q: I understand the exit, when the trend-line is broken you mark the 50% area and if that goes, you exit. However, whats your signal for entry ? A: The first retracement, except in the case of reversals in a trading range (this example doesn't contain any). One just has to accept the risk on those and take them, or else not trade ranges at all, which is generally the better course unless the range is especially wide. Q: Any rules on channels or same as in lines? A: If you mean trend channels, this was addressed in another thread a few days ago. The post I made referenced the following chart: http://cdn3.traderslaboratory.com/f...3245762-re-trading-off-daily-charts-nq-lt.png The instructions for drawing the trendlines are in the second paragraph: The dotted line. Appears to be mid point of the trend. What is the purpose of that? As RN says, it's the midpoint, or midline. If you're familiar with auction market theory, you know about trading ranges and value areas and midpoints/means and mean reversion. The trend channel is simply a diagonal trading range with the same "midpoint". The channel is created by traders trading away from the mean. At some point, the activity reverts to the mean. It can then reverse and go back where it came from, or it can breach the mean and move to the opposite extreme. Or trades can cluster around the mean, as they did in 2012. This reversion to the mean from the extremes is what leads many people to believe that trendlines and channels provide support and resistance, but what appear to be support and resistance are more a matter of standard deviation. As to the trendlines themselves, the first is drawn below the first two swing lows. As RN explained earlier, this line is then copied and plotted across the swing highs beginning with the first swing high between those two swing lows. All of this is then projected forward in a straight line. The lines are not changed if price breaches the line since much of the purpose of drawing the lines in the first place is to be alerted either to "oversold" and "overbought" conditions (i.e., price ventures outside the lines) or to a potential change in trend and even a trend reversal. It is also worth noting that this channel could not be drawn until late 2011. The first channel would be drawn at a severe angle under the first two swing lows in 2009. Such an angle could not be sustained and the channel would be broken by the end of the year. As higher highs are made, the channel begins to rotate downward until it reaches a sustainable angle, in this case by 2011. This particular trend has been sustained for more than four years. As to what is a "sustainable angle", that depends on what traders are comfortable with and how crazy they become. If the angle is reasonably gradual, a great deal of trading will go on at any given point or level. This trading will provide substantial support in an uptrend (and resistance in a downtrend). Parabolic moves, on the other hand, often collapse as rapidly as they rise because there are so few trades at any given level during the ascent; there's nobody there to support the price. Exceptions to the "sustainable angle" can be quite lengthy, as with the Naz in 1999, or, really, 1994 all the way to 1999. But that had largely to do with traders losing their minds, which a great many paid for soon thereafter when the market collapsed. And the afternoon: http://cdn3.traderslaboratory.com/f...2530843-re-trading-off-daily-charts-0628d.png Q: On the long, you go long before the 50% retrace area is taken. Per your rules: "When the line is broken, price is given a chance to retrace. As long as it doesn't retrace more than 50%, the trader stays in the trade." so why did you long prematurely before the 50% line was broken? A: I don't know that I'd call it a "rule" (if I did, my apologies). It's more an indication of market sentiment, i.e., the balance between buying pressure and selling pressure. Be that as it may, if you're referring to the last long and the 50% retr of the immediately-preceding downmove, the short is old news after the "supply line" is broken and a double bottom is made. There's no suggestion of a continuation but rather a change in the balance between selling pressure and buying pressure: sellers appear to be done. If that's the case, price will rise (the "line of least resistance"). If it doesn't, the long will never be triggered, in which case price will most likely move sideways (it may eventually continue downward at some point, but nothing can be done about that unless and until it happens). As a side note, the lateral dotted lines that don't have "50%" on them refer to the swing points, which are expected to provide minimum support. If they don't, that violation can be used to exit at least one contract, if trading more than one. If one keeps an open mind, the market will tell him what to do. Q: [How are] the pink and blue lines with 50% wedges [drawn]...are they just simply drawing line from top to bottom and marking the 50% point? A: As noted above, the blue lines are "demand/support" lines and the pink are "supply/resistance". The first tracks demand/support by connecting the swing lows in an upmove. The second tracks supply/resistance by connecting the swing highs in a downmove. Their purpose is to alert the trader to changes in the balance between buying pressure and selling pressure. These changes may alert him to scale out, pyramid, exit, whatever, depending on his strategy and tactics. "50%" refers to the midpoint of the upward or downward move, e.g., a move from 20 to 10 has a midpoint of 15, a move from 6 to 18 has a midpoint of 12. This can be a "last line in the sand" regarding the continued viability of a trade. Q: I always used the term "timeframe" for the bar, knowing it really wasn't accurate. Bar interval makes sense! A: I should say here at the beginning that "bar" is simply a convenience, stemming perhaps from Homma's "candles" in the 18th century (though I doubt this since Dow probably never heard of Homma). When charts were published in the paper, it made sense to note the range of activity from low to high along with the closing price and, sometimes but not always, the opening price. Bars, however, are nothing more than a choice the trader makes to illustrate the movement of price in segments. Price is continuous and uninterrupted (unless the market is closed). A more accurate representation of price movement would be a line chart, but this is nearly always too big a step for the wannabe to handle, which is why I usually recommend a very small bar interval instead, even a 1t if he can deal with it. If he can't, he's welcome to use a larger bar interval as long as he can view the bars as continuous -- which is far easier to do if done in real time or via replay -- rather than get tangled up in "opens" and "closes" which exist only because he has chosen a particular means of illustrating what is, again, a continuous movement. Put simply, there are no "opens" and "closes" except -- in the case of the NQ, which will be used in this thread -- from the Sunday evening open to the Friday afternoon close. This can sometimes become more clear if one zooms out of his chart window so that the bars melt together into a continuous line. Some have actually had Ah-Ha moments after having done so. Price is a movie, not a slideshow.