Candlestick Charting DeMystified by Wayne A. Corbitt

Author:Wayne A. Corbitt
Language: eng
Format: epub
Publisher: McGraw-Hill

FIGURE 7-6 • 20-Day and 100-Day Moving Averages: Bank of America Corp., Daily

Source: MetaStock

Trend Lines—Identifying the Trend

A trend line is a line that shows the trend of the market by connecting successive highs or lows. While most traders simply draw trend lines by connecting low points in an uptrend or high points in a downtrend, trend lines are much more versatile than that and can be used to project potential price turning points in the future.

The daily chart of the SPDR S&P Retail ETF (Fig. 7-7) shows an example of “classic” trend lines that are drawn by many chartists. Are these lines valid? Absolutely. Do they tell the whole story of where price may change direction? Not really. Line A connects the tops of descending highs, which shows resistance that is acting as a barrier to price advances. Line B connects the bottoms of ascending lows, which shows support that is helping price to reverse higher. This forms a nice triangle that when broken to the upside shows that the previous uptrend is ready to continue.

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