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What We Sometimes Forget About TL Trendlines
What We Sometimes Forget About TL Trendlines
by TonyB
A TL is not a line - it is a thin zone – do not use this as an excuse not to exit, exit then re-enter.
TL breach: The most important factor is how the market is reacting as it approaches the TL.
A breached TL is not a reversal, the trend may continue in another flatter line in another timeframe;
To breach a TL it needs to be done in-force and seen as confirmation in the next candles.
A morobuzo crossing past the middle Gann 50% of a TL does not need confirmation.
Same for an evening star, a dark cloud cover, a confirmed doji, etc
Never ever move a TL “just” to avoid exiting a trend. Exit then re-enter, small insurance to pay.
How to draw a TL
Trendlines are drawn on support (low of candles) in an uptrend … why? We should be long or flat, if long we
want to know of reversals and price retracements which causes us losses, likewise
Trendlines are drawn on resistance (high of candles), for the same reasons reciprocal to above.
Ideally 3 or more pivots, although sometimes, on PR A-C or wave 5, 2 pivots are enough.
Nothing wrong in using the first 2 pivots that show up.
The last pivots are more important than any long time pivot of equal strength.
EW: Use 2 timeframe ZigZag indicators to assist with wave count and pivot identification.
Draw TL, back to front, like Arabic reading, starting from the most recent pivot, this is one technique.
Another technique is to start from the highest pivot or the lowest pivot visible on a time wide chart.
To follow the Trend and check on breaches, it is best to draw TL on the Close of the Candles.
To adjust TL as a Trailing SL, draw the TL two average wicks away from the TL.
Draw a thicker TL, rather than a thin one. TL is a zone, probably an ATR thick, at least.
A breach occurs when the zone is crossed with force or when there is confirmation.
Pitchfork can assist in estimating initial direction of a TL
When RANGING: use TL and some oscillator like Stochastic 14,3,3,20,80 – Be quick to exit
Ranging UP: you may go Short or Long,
Ranging Down: go Short only,
Ranging Sideways: Exit n STAY OUT