Below is a slider tutorial for drawing up trendlines. Captions appear below the pictures in red for guidance, so be sure to scroll down far enough to read them.
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I drew trendline AB beneath price because I want to know when price drops below the trendline. Thus, the first rule of drawing up-sloping trendlines is to draw them below
price, not above it. The stock should touch the trendline at least three times (the more touches, the more significant the trendline is. 'Significant' means it's more important when
it's pierced than a line with fewer touches). Touches spaced farther apart make for a more significant line than those closer together. Modest slopes, say
30 degrees or so, tend to be lasting and more significant. Steeper slopes and the trendline will end quickly. I tested all of this, by the way, so I'm not blowing smoke. Of course, the aspect ratio (the ratio of screen height to width) will change the slope as will the scale (log or linear). Here's an interesting thought that a straight line drawn on semi log scale will appear bowed on the arithmetic scale). In this example, price pierces the trendline at C but recovers. Let's let you drive and find some trendlines in the next chart.
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Draw as many up-sloping trendlines as you want. For help, click here.
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Here are the ones I found. The ones in red I prefer because the angle is more shallow than the green lines. Both colored lines have their uses. Remember that if the trendline
cuts through price, the touch doesn't count. Thus, the first red line on the left has 3 minor low touches only. The line on the right might have only 2 touches because the last price bar might continue
down. We won't know if it reverses there or not until we see more of the chart. Let's draw more on the next slide.
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Draw as many up-sloping trendlines as you can.
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There is only one line to draw and that's ABC. Any other lines would not have enough touches (at least 3). For the trendline measure rule, look for the tallest distance
from the line to price, measured vertically. That is, the distance from E to D. Take that distance and subtract it from the price where the stock pierces the trendline. That happens to
the right of E and I drew a line similar in length from E down to F. The measure rule says to expect the stock to decline the same amount below the trendline as it gained above the line.
In other words, ED should equal EF. In this example, the stock almost touched it at G but did make contact at H. The next slide discusses the 1-2-3 trend change method.
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I provided a tutorial on the 1-2-3 trend change method, but here's a quick review for up-trendlines. Begin by drawing a trendline from the lowest low on the chart to the highest high so that the line does not cut through price until after the highest high. I show that trendline as AC. A is the lowest low. C is the highest high after
the lowest low (forget that the lowest low is in August). Step 1 says to draw the trendline and look for a pierce. Step 2. Price should test the high. That happens at D where the stock attempts
to make a new high, but fails (D fails to rise above B). Then look for the stock to close below the valley made between the trendline pierce and the test of the high. That happens at F when
the stock drops below E. When those three steps are complete, the stock has changed trend from up to down.
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