Rules for drawing trendlines?
Jan, Bruce, Preston? Would someone please summarize rules for drawing bullish support (BSL) and bearish resistance (BRL) lines?
Looking at the chart for Hills (HDS) in "From the Analyst" about a week ago, I see a new BSL. But the chart for OXHP also has a rising pattern of x's and o's, but no new BSL.
Regarding discussion on this thread about trendlines that have been violated, I feel they will continue to be meaningful, and should remain on the chart. Example: a stock breaks a triple top after a long period in a trading range, then corrects with the market in a pattern of lower highs and lower lows, forming a BRL. Now, a violation of this BRL is a great buy signal, but the overhead resistance of the original base obviously remains, as buyers look for a chance to sell at near breakeven prices. Likewise, moving back above old BSL's should tend to revalidate them as potential continuing support.
I know this goes against TD's rules of opting for simplicity, yet it seems to have a place in any advanced P&F analysis. As more people understand support and resistance, breakouts, etc., I expect we will see even more studies on how to profit from false breakouts (eg., see Connors and Rashke, Street Smarts, which shows how to trade many reversal patterns).
More later, Dennis |
