Trend line are pretty basic of every chartists that look at the markets and trades on the market. We all know that you have to use pivot points to draw trend lines. Next, the trend line must contain all price bars unless there are flash crash type bars. Now why do we use trend lines?
Trend lines are drawn and used to give us an indication that the current trend is safe or about to be broken, or broken. The best way to show you is with charts.
Everything about the trend above is perfect and is what everyone wants when the buy a stock, etf, and or tracking their retirement account. We always want price to stay inline with trend, but when price crosses trend, we consider at that point is it time to get out. Let’s look at a violation of trend.
Notice the slope of the first segment of the uptrend. Then it accelerated and eventually price started pulling away from trend even faster. Then profit taking started and shortly after a warning was fired. During one trading day, price actually fell through the uptrend but still managed to close above. The following day a break of trend was confirmed when price at the end of the day closed below trend. This would be taken as a sell signal and normally the next day as long as price continued down, one would sell or close their position. As you can see, this one signal alone was enough to tell you to get out because shortly after price faded lower.
So knowing your pivot points, knowing how and when to draw an uptrend or downtrend can help you with entry and exit signal. Next up, I will attempt to teach CBL’s. To me this is the hardest single thing to understand because to be effective, it needs to be played with a trend, up or down.
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