I have been writing some about trend lines recently and noted my observation, in some of the articles, from the declining utilization of this unique charting tool. I haven’t got any illusions that a few articles with a relatively unknown author will work on using wrinkles but when just a few traders see the need for lines and e-small buying and selling, i then suppose I’ve done my job.
What you know already that the sharp e-small trend position (yet another than 60 levels) would create a longer sustained e-small trend, on first consideration. But several authors (Bulkowski and Murphy) with some less comprehensive back testing on my small part, has proven that sharp angles generally lead to considerably shorter trends. (and therefore, less profit) I figured relating to this some, and also the result is sensible for the reason that a lot of traders are needed to concurrently exchange exactly the same direction to ensure that the popularity to carry on in a sharp position when we put aside the periodic low volume rally, a significant quantity of buying and selling to 1 side from the marketplace is expended in sharp angles and also to keep that position and concentration of a pattern intact would entail an very broad degree of participation by participants inside a given e-small contract. Is that this likely? Not necessarily, because the sharp trend level continues there will be a significant quantity of traders who’d decide the marketplace has covered a lot of property and appear to consider profits, while some would decide (at some cost level) the market has arrived at overbought or oversold levels and appear to exchange the alternative direction. Sharp position trends are usually considerably more short-resided than their flatter angled e-small trends. The very best trends grow to be trends within the 30-40% range.
Length and Touches
The size of a pattern in accordance with performance happens to be a lesser surprise. Lengthy lines have a tendency to perform much better than short lines. Without heavy selling or buying pressure (based upon if the trend lines are upgrading or lower) the marketplace can conserve a relatively constant degree of selling or buying within the same direction. This degree of “asymmetrical equilibrium” (a phrase of my very own invention) is much more sustainable to cause longer lines covering more ground. Given equal trend position, it makes sense that shorter trend lines covers less ground. Not surprising within this observation, but the number of people really take time to consider trend line length and just how it might affect potential profitability?
When discussing support and resistance (SAR) it’s been discovered that the greater touches and subsequent cost rejection across the SAR, the greater robust the road becomes. Again, it shojuld not be a surprise the same relationship is true for trends. At the outset of my buying and selling career, in early ’80’s, the “old-timers” was adamant the more touches along a line would create a trend line which was better quality. I simply recognized it as being a well known fact, and apparently , the greater peak or valley “touches” along a pattern line that lead to cost rejection, the higher the potential profit within the trend line. On the other hand, trend lines with under 3 touches were built with a greater possibility of being breached. (Bulkowski and Player) I guess common logic would dictate the reality of the assumption, as increasing numbers of effective tests of the trend line that lead to cost rejection creates, at the minimum, a mental image in traders’ minds the line will prove, over time, to become a struggle to breach.
In conclusion, I’ve mentioned that sharp position trend lines are usually less lucrative that gradual sloping trend lines. Further, I’ve mentioned that longer trend lines with increased touches leading to cost rejection tend to be robust than less touched trend lines. While neither of those odds alone will drastically change buying and selling results, they actually may change a number of your buying and selling decisions when considered in aggregate. Further, this series trendy lines continues to be packed with similar observations that whenever bundled together could, indeed, possess a profound impact on the way you trade trend lines.