YTC - Introduction to Trading -

Technical Analysis

Module 4: Chart Analysis

Part D: Trendlines & Channels

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© Copyright 2013. Lance Beggs. All Rights Reserved.

 Disclaimer

• Before commencing this course, please familiarize

yourself with the full disclaimer at the following webpage:
http://www.yourtradingcoach.com/Disclaimer.html

• If you are unsure about the contents of the disclaimer,

please contact me via support@YourTradingCoach.com

Disclaimer
• The information available on our website and any of our products
is GENERAL COMMENT ONLY, for the purposes of information and
education.

• We don't know you so any information we provide does not take into
account your individual circumstances, and
SHOULD NOT BE CONSIDERED ADVICE.

• Before investing or trading on the basis of our material, we

encourage you to first SEEK PROFESSIONAL ADVICE with regard
to whether or not it is appropriate to your own particular financial
circumstances, needs and objectives.

© Copyright 2013. Lance Beggs. All Rights Reserved.

 Uptrend

An uptrend is defined by
a trendline drawn below
price, joining a swing low
with higher swing lows.

Two touches creates a

potential trendline.

A third confirms the trendline.

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 Uptrend

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 Uptrend

A trendline does not need to touch

the exact low points.

Plot the line to create the “best fit”.

Tails beyond the trendline do

not invalidate the trendline.

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 Uptrend

A trendline does not need to touch

the exact low points.

Plot the line to create the “best fit”.

A break of the trendline which is

immediately rejected, does not
signal an end of that trend.

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 Uptrend

A trendline does not need to touch

the exact low points.

Plot the line to create the “best fit”.

How much time beyond the

trendline will you accept?

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 Uptrend

A break of a trendline
(with price acceptance in the new area)
confirms the end of that trend.

Price has clearly broken the

uptrend, so our trendline is
NO LONGER VALID.

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 Downtrend

A downtrend is defined
by a trendline drawn
above price, joining a
swing high with lower
swing highs.

Two touches creates a

potential trendline.

A third confirms the trendline.

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 Downtrend

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 Downtrend

Tails beyond the trendline do

A trendline does not not invalidate the trendline.
need to touch the exact
high points.

Plot the line to create

the “best fit”.

And a break of the trendline which is

immediately rejected, does not signal
an end of that trend.

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 Downtrend

Price has clearly broken the

downtrend, so our trendline is
NO LONGER VALID.

A break of a trendline
(with price acceptance in the new area)
confirms the end of that trend.

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 Sideways Trend / Trading Range

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 Characteristics of a Trendline

1. Direction
– An indicator of trend.
– Also an indicator of
sentiment.

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 Characteristics of a Trendline
2. Angle of slope
– A steep slope represents more intense sentiment. A shallow slope
represents weaker sentiment.

Greater
bullish
sentiment

Bullish sentiment

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 Characteristics of a Trendline
2. Angle of slope
– A steep slope is generally considered unsustainable. A break of a
steeper trendline should see price return to the more shallow trendline.

A break of the steeper trendline does not

invalidate the more shallow trendline.

We expect price to return

to and respect the more
shallow trendline.

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 Characteristics of a Trendline
3. Length
– A longer trendline is regarded as more significant and therefore more
reliable than a short trendline.

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 Characteristics of a Trendline
3. Length
– A break of a longer trendline is considered a more significant event.

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 Characteristics of a Trendline
3. Length
– A longer trendline is regarded as more significant and therefore more
reliable than a short trendline.
Daily chart
GBP/USD downtrend
1-Hour Chart

1-hour chart
uptrend

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 Characteristics of a Trendline

4. Number of touches
– The more times price touches a trendline, the more the trendline is
regarded as significant and reliable.
– The break of such a trendline is considered a more significant event.

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 Characteristics of a Trendline

Characteristics of a Trendline
1. Direction

2. Angle of slope.

3. Length

4. Number of touches

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 Examples

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 Examples

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 Examples

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 Examples

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 Examples

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 Examples

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 Examples

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 Examples

Entry SHORT
in the vicinity of
the trendline.

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 Trendlines – at the Hard Right Edge

Three Primary Challenges

1. What do you do when the trendline no longer provides a “best fit”?

2. What is the trend after a confirmed break of a trendline?

3. What do you do when you just can’t read the trend?

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 Trendlines – at the Hard Right Edge

What do we do when the trendline no longer provides a “best fit”?

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 Trendlines – at the Hard Right Edge

What is the trend after a confirmed break of the trendline?

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 Trendlines – at the Hard Right Edge

What is the trend after a confirmed break of the trendline?

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 Trendlines – at the Hard Right Edge

What do you do when you just can’t read the trend?

1. Use common sense –

keep it simple.
2. Get a wider perspective.

?
3. Combine methods of trend
definition.
4. Or define an uncertain
trend and stand aside.

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 Trendlines – at the Hard Right Edge

Three Primary Challenges

1. What do you do when the trendline no longer provides a “best fit”?
– Adjust as required to maintain “best fit”.

2. What is the trend after a confirmed break of a trendline?

– Look to the swing highs and lows and allow the market to define the new trend.

3. What do you do when you just can’t read the trend?

– Use common sense – keep it simple.
– Get a wider perspective.
– Combine methods of trend definition.
– Or define an uncertain trend and stand aside.

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 Examples
Monday

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 Examples
Tuesday

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 Examples
Wednesday

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 Examples
Thursday

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 Examples
Friday

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 Channels
Outside line
Return line
Channel line
Uptrend

Trendline
Inside line

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 Channels

Inside line
Trendline

Channel line
Downtrend
Return line
Outside line

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 Channels
• Only mark the channel line if it’s obvious

• Benefits
– Targets
– Counter-trend trade opportunity

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 Examples

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 Examples

Entry

Target

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 Summary
• An uptrend is defined by a trendline drawn
below price, joining a swing low with
higher swing lows.

• Two touches creates a potential trendline.

A third confirms the trendline.

• The trendline offers buying opportunity on

the third and subsequent tests of the
trendline.

• A break of the trendline which is

immediately rejected, does not signal an
end of that trend.

• However, a break of the trendline which is

accepted, by price holding these new
levels, confirms the end of that trend.

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 Summary
• A downtrend is defined by a trendline drawn
above price, joining a swing high with lower
swing highs.

• Two touches creates a potential trendline. A

third confirms the trendline.

• The trendline offers short selling opportunity

(if your market allows that) on the third and
subsequent tests of the trendline.

• A break of the trendline which is immediately

rejected, does not signal an end of that trend.

• However, a break of the trendline which is

accepted, by price holding these new levels,
confirms the end of that trend.

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 Summary
Characteristics of a Trendline
1. Direction
– An indicator of trend.
– Also an indicator of sentiment.

2. Angle of slope
– A steep slope represents more intense sentiment. A shallow slope represents weaker
sentiment.
– A steep slope is generally considered unsustainable. A break of a steeper trendline
should see price return to the more shallow trendline.

3. Length
– A longer trendline is regarded as more significant and therefore more reliable than a
short trendline.
– A break of a longer trendline is considered a more significant event.

4. Number of touches
– The more times price touches a trendline, the more the trendline is regarded as
significant and reliable.
– The break of such a trendline is considered a more significant event.

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 Summary
Three Primary Challenges – at the Hard Right Edge
1. What do you do when the trendline no longer provides a “best fit”?
– Adjust as required to maintain “best fit”.

2. What is the trend after a confirmed break of a trendline?

– Look to the swing highs and lows and allow the market to define the new trend.

3. What do you do when you just can’t read the trend?

– Use common sense – keep it simple.
– Get a wider perspective.
– Combine methods of trend definition.
– Or define an uncertain trend and stand aside.

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 Summary
Channels
• A channel line is drawn parallel to a trendline
– Across the bottoms of a downtrend
– Across the tops of an uptrend

• A channel line provides a potential target for trades taken in the

vicinity of the trendline.

• Failures of excursions beyond the channel line offer a potential entry

location for a counter-trend trade back into the channel area.

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 Homework
• Historical:

– Following this video, use your charting platform to open a chart and use the
trendline method to define the market as either an uptrend, downtrend or a
range.

– Repeat until you are comfortable with the process.

• Historical

– Display historical charts which show changing environments. Mark the two or
more trendlines. Study the point of transition from one trend to the next.

– Repeat until you’re comfortable with the use of trendlines at the point of trend
change.

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 Homework
• Historical

– Identify channels and note how the outside trendline offers opportunity for profit
taking.

• Real Time
– Plot a current trendline and then move forward in time bar-by-bar, adjusting the
trendline as required to ensure a good fit, and determining the new trendline
upon a confirmed break.

– Repeat until you’re comfortable with the process of using trendlines at the hard
right edge of the screen.

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 Coming up next…

Module 4 – Chart Analysis

Part E: Support and Resistance

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 Contact Details
• Lance Beggs

• Email:
support@yourtradingcoach.com

Thank You!

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