The Best Trendline Methods (part1)

[Teaching Da Nang stock] - Introdce The Best Trendline Methods 

 

Bar Charts and Pivots

In this book we will use the standard financial bar chart to present the trendline methods. The chart seen below is a bar chart. The price scale is on the left side. The time scale is across the bottom. Each vertical line is an individual price bar. In this book we will often make reference to a price pivot. A pivot is a point where the price bars change direction. On the chart below there is a label "Top Pivot" and a label "Bottom Pivot". These identify simple examples of pivots.

The picture below shows an individual price bar. The bar has an opening tick mark on the left and the closing tick mark on the right side. The high and low price are used to create the vertical bar.

 

 High to High and Low to Low Trendlines

The chart on this page shows four trendlines. One of the trendlines is connecting pivots В and

C. This trendline has two characteristics. It is upward sloping and is connecting two high pivots. This line is identified as an upward High to High trendline.

Also on this chart is a trendline connecting pivots A and D. The two characteristics of this trendline are that it is upward sloping and is connecting two low pivots. This line is identified as an upward Low to Low trendline.

When a trendline connects two of the same pivot types, such as two high pivots or two low pivots, there are six basic trendlines. These are: 1) downward high to high, 2) downward low to low, 3) upward high to high, 4) upward low to low, 5) horizontal high to high and finally 6) horizontal low to low.

 High to Low and Low to High Trendlines

The chart below shows a trendline drawn from pivots A to B. This line has two attributes. It is upward sloping and is connecting a low and a high pivot. Also on this chart is a trendline connecting pivots С and D. The two attributes of this line are downward sloping and connecting a high and a low pivot.

When a trendline connects two pivots of the opposite type such as high to low there are six possible trendlines. These are: 1) upward high to low, 2) upward low to high, 3) downward high to low, 4) downward low to high, 5) horizontal high to low and 6) horizontal low to high.

 Multi-Pivot Line

Andrews used a trendline that he named the Multi-Pivot line. This is a trendline which runs through more than two pivots. This  trendline does not have to run through the exact high or low of each pivot; it only needs to be close to each pivot. Andrews believed that the greater number of pivots through which a trendline runs, the more important the trendline is for finding future support and resistance levels and pivots. The chart below is for General Motors, symbol GM. On this chart there is a trendline which runs through five pivots. This is a Multi-Pivot Line and should be considered more important than a standard trendline which uses only two pivots.