Best Thread All About Trendlines

[roguetrader]

Yes but you have to have a pillow in order to find something under it

 

[FTSE Beater]

If 1 ma is not an indicator, how about 2ma's? Are 2 ma's an indicator?
If not, how about MACD? is that an indicator? it's the distance between 2 ma's.
At which point will a ma become an indicator?

Hi Sulong

It depends where they appear on a chart. If they appear on the main chart, then it is not an indicator IMHO. However, if they appear in a lower pane of a chart, then it is clearly an indicator.
With regards having 2 MA's, it depends how you use them. If you look at crossovers or divergence, then you are using it to indicate something and all MACD does is gives a clearer view of what the 2 MA's are doing

Before coming to any conclusions about what provides an edge, one ought to keep in mind that a given event -- such as price seemingly finding S or R at a TL or an MA -- may be only incidental to what is truly providing that S or R

Good point, however, take support for instance. Why does price find any suppport and turn from a downtrend? because either people are buying a lot of stock, or Marketmakers have a lot of stock to sell, so they want the price higher to get a better price. Now, when it comes to a support level, then it's more likely that the reason it's going to bounce up is because people are buying in seeing the support point - that's what is truly providing support.

 

[JumpOff]

Good point, however, take support for instance. Why does price find any support and turn from a downtrend? because either people are buying a lot of stock, or Marketmakers have a lot of stock to sell, so they want the price higher to get a better price. Now, when it comes to a support level, then it's more likely that the reason it's going to bounce up is because people are buying in seeing the support point - that's what is truly providing support.

That seems like a slightly TA centric point of view. Many electronic traders use charts and TA to make purchase decisions, but don't a lot of the bigger funds do fundamental analysis about debt load, profit ratios, new product development, market share, etc...? In the grand scheme of things, those of us who trade by technical analysis alone - without any fundamental knowledge of the underlying instrument - may be a rarity. Are you sure we are significant enough as a group to move the market?

I've always thought of TA as a shortcut to understanding or observing market sentiment as it has happened in the past and is happening now. No mark on a piece of chart paper is going to cause a price to move. TA can show you the current trajectory, and the safest positions are with the trajectory. A market continues in its current path until new information causes buyers and sellers to feel differently about the positions they have or desire.

I see trading as very similar to hitchhiking. None us has a car, we must get on a vehicle that we hope will move us far enough along to make it worth our while. Most of us don't even care which way we go, as long as we are moving. If we get on a northbound vehicle, we'd be silly to try to go south in it. All we can say is that is has been generally going north recently, or that it's southward movement has slowed so precipitously that we expect there is an increased chance for it to go north in the next few moments or days. It may take us to the pole, or it may turn around and head south 5 minutes from now if the driver learns there is some impassible storm ahead.

Although I'm probably contradicting some earlier postings of my own, I don't believe that TA can 'cause' any action 10 minutes from now. It can show you the direction a stock or commodity is going now, and then you have to play the percentages.
JO

(I could be wrong - my paper account has been going down again recently. )

 

[dbphoenix]

That seems like a slightly TA centric point of view.

True. The idea that those who move important money do so because of a line drawn arbitrarily by a group of chartists is probably wishful thinking, particularly if few -- or none -- of these movers ever look at charts . . .

 

[bracke]

FTSE Beater

"It depends where they appear on a chart. If they appear on the main chart, then it is not an indicator IMHO. However, if they appear in a lower pane of a chart, then it is clearly an indicator."

Unless I am missing something here, the above surely cannot be correct.

What difference does it make where they or any other numbers or indicators are located. Surely it is about what they are for not where they are placed.

Regards

bracke

 

[FTSE Beater]

argh an ambush

ok here goes

That seems like a slightly TA centric point of view. Many electronic traders use charts and TA to make purchase decisions, but don't a lot of the bigger funds do fundamental analysis about debt load, profit ratios, new product development, market share, etc...? In the grand scheme of things, those of us who trade by technical analysis alone - without any fundamental knowledge of the underlying instrument - may be a rarity.

Fund managers have to use fundamental analysis. You have to remember a Fund manager can't just get out of a trade, they can't sell a lot of shares very quickly, so they have to make buying decisions based on the "boring" stuff, like PE ratios etc. to make sure a company isn't likely to go bust on them.

Are you sure we are significant enough as a group to move the market?

What do you think caused the stock market boom in 2000? A lot of the public were buying stock left right and centre.
Speaking to Naz recently we got talking, and there is some days when market makers have to go running for cover because the public interest is too high in a stock and they can't control it. Private investors are a powerful thing in the market. You try buying a few shares in an AIM stock and you'll move the price. I know Pauly Pilot from the Motley Fool would bump a share price up 50%+ in some of the smaller stocks and he's not a big player.

True. The idea that those who move important money do so because of a line drawn arbitrarily by a group of chartists is probably wishful thinking, particularly if few -- or none -- of these movers ever look at charts . . .

So why do market makers go stop running?
I think this explains it perfectly for me as to whether the movers look at charts.

One of the primary problems with any kind of trading in the outrights, whether it be in futures or stocks, is that of stop running. The insiders love it when they can see your order. Even when your entry or exit is held mentally, they know where it is. They are keenly aware of where people place their orders. That is why they love Fibonacci and Gann traders. They know precisely where those people will place their orders. The same is true for anyone who uses one of the more commonly known indicators. The insiders fade moving average crossovers, and so-called overbought and oversold—regardless of which indicator is used to show either of those conditions. They know when prices have reached the outer limits of the Bollinger Bands, and they know the location of supposed support and resistance, etc.

I think that explains it better than I could.

Unless I am missing something here, the above surely cannot be correct.

What difference does it make where they or any other numbers or indicators are located. Surely it is about what they are for not where they are placed.

I could be wrong about this. However I'm struggling to think of any indicator that is displayed with the chart that could be considered an indicator.

 

[dbphoenix]

So why do market makers go stop running?
:

You're being somewhat selective as to what you respond to. What I said was "the idea that those who move important money do so because of a line drawn arbitrarily by a group of chartists is probably wishful thinking, particularly if few -- or none -- of these movers ever look at charts . . ."

If you believe that all market makers are looking at the same charts with the same bar intervals and the same MAs and the same BBs and the same trendlines and the same whatever other sort of line you think supplies support and resistance, then I suggest that that is wishful thinking. Which is not to say that I'm right, but the thread does seem to have drifted from the subject of whether or not TLs and MAs provide support and resistance. I maintain that they do not. When I see something other than anecdotal evidence that they do, I'll be first in line to agree. But I anticipate a long wait.

 

[roguetrader]

What I said was "the idea that those who move important money do so because of a line drawn arbitrarily by a group of chartists is probably wishful thinking, particularly if few -- or none -- of these movers ever look at charts ...

And what of Hedge funds, or is their money unimprotant money? I have seen countless hedge fund managers refer to technical analysis to time their entry and exit from positions, breaks of long running trendlines frequently lead to significant moves.

If you believe that all market makers are looking at the same charts with the same bar intervals and the same MAs and the same BBs and the same trendlines and the same whatever other sort of line you think supplies support and resistance, then I suggest that that is wishful thinking..

I have absolutely no doubt that anyone looking at a daily or weekly trendline in a given stock is looking at the same one that I am looking at, drawing of trendlines isn't exactly advanced technical drawing.

Which is not to say that I'm right, but the thread does seem to have drifted from the subject of whether or not TLs and MAs provide support and resistance. I maintain that they do not. When I see something other than anecdotal evidence that they do, I'll be first in line to agree. But I anticipate a long wait.

As is your right., as I have said before it is my contention that lines on charts do not provide support and resistance, it is buying and selling pressure that provides this, lines on charts simply plot possible areas of support which has yet to be confirmed

 

[dbphoenix]

And what of Hedge funds, or is their money unimprotant money? I have seen countless hedge fund managers refer to technical analysis to time their entry and exit from positions, breaks of long running trendlines frequently lead to significant moves.



I have absolutely no doubt that anyone looking at a daily or weekly trendline in a given stock is looking at the same one that I am looking at, drawing of trendlines isn't exactly advanced technical drawing.

I'm sure that all sorts of people look at all sorts of things. The point is whether or not they are all looking at the same thing. If they aren't, what difference does whatever they're looking at make?

And while I may agree that drawing trendlines is hardly advanced, after 15 years of doing this, I can tell you that you'd be surprised at some of the efforts I've seen.

Edit: Drawing back from the abyss of theory and philosophy, let's look at a chart.

At what points does this 40w (200d) SMA provide S or R to the Dow?

 

[roguetrader]

That seems like a slightly TA centric point of view. Many electronic traders use charts and TA to make purchase decisions, but don't a lot of the bigger funds do fundamental analysis about debt load, profit ratios, new product development, market share, etc...? )

You are quite right but funds who trade on fundamental analysis do not enter a stock at 10am and exit at 10:20, the fundamentals do not change intraday so they do not trade intraday.

In the grand scheme of things, those of us who trade by technical analysis alone - without any fundamental knowledge of the underlying instrument - may be a rarity. Are you sure we are significant enough as a group to move the market? )

It would be my view that nobody daytrades based purely on fundamentals

I've always thought of TA as a shortcut to understanding or observing market sentiment as it has happened in the past and is happening now. No mark on a piece of chart paper is going to cause a price to move. )

One of the beautys of trading the market is that it is moved around by humans and human nature. Humans generally by nature are creatures of habit, and are gregarious, lines on charts offer them an oppertunity to do what they did last time they approached this line and the herd mentality means lot's of them follow suit.

None us has a car, we must get on a vehicle that we hope will move us far enough along to make it worth our while. )

Hope doesn't come into it. Hold out your hands and hope in one and sh*t in the other and see which one gets filled first

 

[barjon]

I'm sure that all sorts of people look at all sorts of things. The point is whether or not they are all looking at the same thing. If they aren't, what difference does whatever they're looking at make?

And while I may agree that drawing trendlines is hardly advanced, after 15 years of doing this, I can tell you that you'd be surprised at some of the efforts I've seen.

Edit: Drawing back from the abyss of theory and philosophy, let's look at a chart.

At what points does this 40w (200d) SMA provide S or R to the Dow?

db

It doesn't. But, by the same token there's little to suggest S or R at the peaks and troughs of the reaction/retracement. There was, however, a fairly consistent dimunition of enthusiasm and If you draw in the trend line channel you'd be hard pressed not to think that it gave you a clue as to where S and R might be expected.

good trading

jon

 

[roguetrader]

And while I may agree that drawing trendlines is hardly advanced, after 15 years of doing this, I can tell you that you'd be surprised at some of the efforts I've seen.

Lol I can appreciate that, but I think there's enough money that knows how to draw a trendline.

Ok, first thing that I would say is that generally people who take an opportunity to point out how experienced they are or how long they have been doing something, either conciously or unconciously, are making the point that they have seen all the evidence and have made their decision. But that is fine, as a friend and mentor of mine would always say, "That's ok, it's your money not mine. You trade it whichever way you see fit."

Now with regard to your chart, at point 1. for 3 weeks the Dow fails to close below the 40ma resulting in a bounce, the bounce is quickly reversed and the subsequent failure of support results in an accelerated selloff. Moving to points 2 & 3 as old support becomes new resistance the stock has trouble remounting the MA. what would likely be more telling is how the stock reacted at these level on a daily basis. the importance of moving averages and trendlines for that matter, is not that they are buy and sell points but that they focus your attention to price and volume activity at that point and alert you to an event that may occur. For example if I am short DIA intra-day as it approaches the 50 day MA I am paying much closer attention to the tape and may lighten my position to lock in profit. Similarly if I am on the sidelines as it trades down to the same MA it will focus my attention for a long opportunity for a bounce. If I simply dismiss them as being of no consequence the I lose both the protection and the opportunities afforded by being aware of their significance.

 

[dbphoenix]

db

It doesn't. But, by the same token there's little to suggest S or R at the peaks and troughs of the reaction/retracement. There was, however, a fairly consistent dimunition of enthusiasm and If you draw in the trend line channel you'd be hard pressed not to think that it gave you a clue as to where S and R might be expected.

good trading

jon

Actually, Wyckoff would have no trouble at all finding S/R at the peaks and troughs. As to the "channel", perhaps, in hindsight. But I would be even harder-pressed to make a case that somebody bought because somebody else had drawn a line there.

 

[dbphoenix]

the importance of moving averages and trendlines for that matter, is not that they are buy and sell points but that they focus your attention to price and volume activity at that point and alert you to an event that may occur. .

The importance of S/R is as you say. The question is whether or not MAs and TLs provide it, and what you've said suggests only that you're looking in the wrong place.

The S/R are provide by those levels at which significant buying or selling has taken place. They are also those levels at which trading activity is most likely to occur. Since these levels are the same on every chart that displays price, no matter who creates it, no matter where he creates it, logically they are far more likely to ignite activity than a line drawn arbitrarily by a relatively few chartists. S/R can't be provided by lines that no one knows are there.

You can, of course, plot a 200d EMA in addition to the SMA. And a WMA. You can also plot a 150d, which many people do. Enough of these lines and you're bound to find a bounce somewhere. If, after all, these lines worked so well, MA XOs would be the Holy Graille.

 

[roguetrader]

The S/R are provide by those levels at which significant buying or selling has taken place. They are also those levels at which trading activity is most likely to occur. Since these levels are the same on every chart that displays price, no matter who creates it, no matter where he creates it, logically they are far more likely to ignite activity than a line drawn arbitrarily by a relatively few chartists. S/R can't be provided by lines that no one knows are there..

Hmmn perhaps I should change my nick to "Lines on charts do not provide support and resistance" I have already pointed out on more than one occaision that lines on charts do not provide support or resistance but that buying and selling does. These lines simply alert us to where this may occur.
We are both entrenched in our views on this subject and will simply have to agree to disagree, further debate on the subject between us will serve little purpose. Thank you for the good natured discussion.

 

[dbphoenix]

As is usual with this sort of topic, one invariably begins revisiting the same familiar territory, which is one reason why people write. Even though this involves a bit of grave-robbing, the following may be of interest, plucked from the old Price thread in General Chat:

. . . it's important to focus on what Magee calls the "territory" -- the reality -- rather than the map, i.e., our representation of that territory. The territory is prices paid. Our maps are our representations of it: MAs, Fib ratios, MACD, patterns, etc.

S/R are found where important buying/selling have taken place, important enough to have turned price. Therefore, the first place to look for S/R are those price points and/or price levels. Anything else is a representation, and that representation may have nothing to do with the reality.

What is considered 'important buying and selling' and how do I find them.

Important support and resistance levels can be found at those levels or zones in which a relatively large number of trades took place. These trades need not have occurred on only one occasion. In a base, for example, when "big money" is accumulating shares, these trades take place over an extended period of time over a narrow range of prices. Therefore, all told, many trades have taken place even though volume has been low.

Many trades can also occur in a broader range over a period of time which may be shorter or longer than an accumulative base. For example, if a given level is hit repeatedly and price is "supported" there by professional buying, that level becomes strong support, even though the number of shares traded during any one occurrence are not impressive.

Ditto all of this for resistance. There will be a level at which shares or contracts or whatever are repeatedly sold, though the reasons for the sales may be difficult if not impossible to determine. These sales can take place in a "zone of distribution". Or they can take place over time when a particular level is repeatedly tested.

Support and resistance, then, can be found in a swing point or the top or bottom of a reaction, but it is highly unlikely that the support or resistance found there will be important as it doesn't represent enough previous trades. In other words, there just aren't enough traders who care about it to make it important.

For the same reason, whatever support and resistance seem to be found with indicators or trendlines are most likely coincidental since these other lines don't represent previous trading activity. In fact, they're constantly moving.

The term "law of reciprocity" or "principle of reciprocity" is sometimes applied to the tendency of support to become resistance when it's penetrated, or vice-versa. However, "law" and "principle" are a bit high-toned to apply to this concept. There is nothing absolute about S/R. In fact, S/R can be quite soft. For example, if a given level is tested repeatedly as support, those holders who bought there may eventually begin to become concerned over these tests and over the fact that whatever they bought isn't going anywhere. Some of them may decide to sell some of all of whatever they bought if and when another test occurs. In this way, support fails.

Even "failure", however, may not be as important as first thought. S/R isn't, and need not be, rigid. In fact, it is quite flexible. A level or line can be penetrated to what seems to be an intolerable degree, but if price rebounds to that level or line and finds S/R there yet again, then that level or line can become even "stronger" (more impotant) than it was before, which is why it's better to think in terms of S/R "zones" than of specific prices.

S/R may, in fact, be too soft for some traders to fool with. However, if one understands that correctly-drawn S/R lines represent levels or zones in which a large number of trades took place, and that one can expect important action to take place at important S/R, he can then avoid wasting his time on relatively trivial trades and prepare himself to take advantage of more potentially profitable opportunities.

Here's to a worthwhile Friday

 

[roguetrader]

Alternatively,

http://Investing.typepad.com/canslim_investing/2004/05/support_resista.html

Alan S. Farley describes the role of both moving averages and trendlines in his book "The Master Swing Trader" and for those of you who learned their candlestick charting from Steve Nison you will find he refers to both moving averages and trendlines as support and resistance in his book "Japanese Candlestick Charting Techniques"

 

[TheBramble]

RT - I think you and dbp have pretty much have it covered with the 'battle of the books'.

Seems some can use TL (and even MA - at a stretch) to satisfactorily determine S&R in a manner appropriate to their trading style and expertise. Others cannot.

There's no right or wrong - just the ability to either utilise a market phenomenon - or not.

I doubt many who can press TL and MA into action as direct manifestations of S&R or as a proxy, do not necessarily exclude the 'standard' approach to defining and recognising S&R. I'm sure I don't. It does seem though that those of the opposing camp (standard definition only) find it difficult to accept the possibility of the alternative.

A prime example of 2 people seeing the same thing and being able to interpret it differently.

I really don't think it matters who believes what - there seems to be some fairly partisan lines being drawn up with quoted references to the 'big names' - both (all) of which of course are correct - for them - and for those that 'see' things the way they do.

To assume there is just one right way would be a vanity of rather limiting dimensions.

 

[dbphoenix]

Alternatively,

Alan S. Farley describes the role of both moving averages and trendlines in his book "The Master Swing Trader" and for those of you who learned their candlestick charting from Steve Nison you will find he refers to both moving averages and trendlines as support and resistance in his book "Japanese Candlestick Charting Techniques"

Then of course there's Fib, Gann, Wolfe, EW, pitchforks, fans . . .

I'll go with Spock

 

[roguetrader]

Hi Tony, agree totally with what you say, my purpose was simply to demonstrate that there is another school of thought on the use of these tools. For those who are established in their trading methods and do not view the use of these tools for this purpose worthwhile, fair play. But for those who are still searching for their niche then it is worth exploring.