Good Sunday Afternoon Bruce,
Your last two posts have been terrific! Keep up that kind of thoughtful work. It helps us all.
Bruce, I didn't do a very good job of reading your first post (3036) relative to the BSL. On first read, and with your reference to "Valid" and "Invalid", I thought you might be throwing something out for discussion about actually reverting to a previous BSL, and making that previous BSL the signal sensitive trend line. (That is, the one that once penetrated would cause a new brl to be formed.) Your second post makes clear that was not the case.
A random thought or two on trend lines, support & resistance (S&R), etc.
On more than one occasion, my staff has heard me say, "History often repeats itself, but not exactly." That statements broad enough to give me plenty of wiggle room, but still makes us look backwards to help us see what might be ahead.
P&F charts often repeat, but not exactly. A P&F chart is a wonderful history lesson in supply and demand. Because of its unique construction requirements, it eliminates a great deal of insignificant market chatter, and provides a clear picture of highs and lows. I'll tell you why I look at a P&F chart - its got the best damn depictions of a) actual $$ support and resistance; b) major trend lines (and therefore trading channels); c) secondary trend lines; d) buy/sell signals; and e) reversals, of any chart in the game. Plus, if history repeats, but not exactly, they help my predictions of what the future might bring. (I'm just looking for an edge.)
One of my TA mentors I've found at SI says that S&R are Kings. I'm starting to think he's right. He also says that S&R and trend lines are 90% of the game. Again, I'm starting to think he's right. He says that S&R are where the people are, and if we look for people, they will give us clues. On a P&F chart we have horizontal S&R, which are actual $$ high and lows, and angled trend lines, which are probable S&R. They both provide a wealth of information. Which one is more important? Why? How should they be used together? How long are they valid?
Here to fore, I have not continued to extend the BSL or brl once they're penetrated. I did so "Cause that's how I was taught". (Sometimes I forget to question or experiment.) I can't deny that it takes some serious supply and demand battling for a BSL or brl to be created. And, we both know how a stock will follow a BSL or brl like a river to its bank. Since these are the strongest trend lines, and since they create the boundaries for our trading channels, then you have a strong point to continue extending them. Even if Chartcraft does not.
I now look at trend penetrations (regardless of the type of trend line) as a great observation tool. If support is penetrated, it becomes resistance. If resistance is penetrated, it becomes support. Some are strong on one side, and weak on the other. What's going on when these things take place? (This is where my study for an additional TA indicator or two is starting to help.)
Another old saying my staff is probably sick of hearing is a story attributed to Gandhi. It goes something like: At the conclusion of Gandhi's speech before a group of British officials, one of Gandhi's aid's took him aside and said, "But Sir, that's not what you said last week." To which Mr. Gandhi is reported to have replied, "Yes, but I know more this week than I did last."
That's the story I relate when it's time to admit that a previous course of action is not working as planned. Or, I'm rethinking a position/policy. (Yes! Or I'm just vacillating because I don't know what the h--- to do.)
Every day that I look at a P&F chart I learn something new. If actual $$S&R are kings, then perhaps the major trend lines are the queens, and the secondary trend lines are of the prince/princess type. Further, it is reasonable to assume that until I have done my own experimenting, that queens should be rightfully honored and dully extended. I cannot intelligently debate otherwise.
That said, I'm just a poor old slow Norwegian who knows more today than I did yesterday, trying to learn the social science of P&F chart reading. If extending a BSL or brl will help me to make the right call, that is, put a few more dollars in my pocket, then I'll give them a try and see what I can learn.
Admirer
Eric
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