Do trendlines work?

Grey1,
I did qualify my comment with " to a reasonable level of statistical accuracy". If you use 1SD which is 68%, and the data breaks the 1SD line, there is a 16% ( 1/2 of 32%) chance that the trend has not broken. If you use 2SD, which is 95%, and the data breaks the 2SD line, there is a 2.5% (1/2 of 5%) chance that the trend has not broken.
However, your point is well made. About 10 years ago when I was heavily into traded options on the FTSE, the data broke the 2SD line going down. I bought a shed load of Puts and lost a lot as I had fallen into a "Bear Trap" I learnt an expensive lesson that the market doesn't play by my rules!
regards
 
Salty -

I read somewhere that volume on the LSE is reported as number of trades, rather than shares traded. Is this true? I dont pay any attention to LSE/FTSE (bit like tick volume in the pits I guess).

As for my remarks on trendlines, I was trying to point out that they are not an exact science as some tend to treat them. Fine, they may give you a visual indication that the trend/market structure MAY be changing, but its only a warning. As your trend line will be different from my trend line - and even worse - your trend line will be different in another charting package. They dont give 'exact' signals.

As for FTSE's comment about doubting insiders deliberately fade stochastics - thats your prerogative, and there is an element of truth in your remark of the parameters entered into the algorithm. However, most chart packages set the values to the same defaults (eg the 14 bar RSI which was infact only based on 14 because of the lunar cycle!). IT IS THESE DEFAULT VALUES THAT GET FADED BY MM's! Most traders, especially the newbie who won't be around too long rarely changes the parameters. I bet 80% of people who use RSI keep the default value of 14.

Markets are manipulated far more than most would like to admit. Trust me on this one. With that in mind, Christmas is coming. That means brokers and dealers will be busy trying to boost their profits ready for a fat Crimbo bonus. This means we will be seeing more manipulation than normal this time of year!
 
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I suspect trend lines do work, but they are largely meaningless without:

a) defining the user, since different people will see different lines depending on the timescale and number of points.

b) defining your exit criteria and therefore what consitutes success. eg. has the market moved in the preferred direction after a certain number of hours or days. (You have to be careful here since it is possible to make money in certain markets using a random entry, therefore the trendline may have little to do with the success).
 
BBB -
trendlines DO exist, if everyone in the market knows "the rules for drawing them" then they'll all mentally draw them in the same place... whilst a degree of subjectivity does exist enough people will agree that a line exists from point A to point B on a chart to influence their decisions when trading the share in question. It doesn't really matter whether or not a line exists, what matters is that enough people BELIEVE it does for them to buy/sell as the perceived line is touched so that the price reverses as expected.. markets are a supply/demand battle and trendlines help identify the areas of no mans land.
I'd agree that different programs using different timescales (or, in P&F for example, different boxsizes/reversals) will draw lines in different places - I'd argue that most people will tend to draw the lines on a bar or candle chart using daily bars in pretty much the same places. If you change the timescale the lines will move - using weekly or monthly bars you'll see different lines, but that's commonsense and should be expected. (I'm an EoD type, the intraday moves are not generally of interest... a daytrader will see 4 trends where I see a listless day!)
I agree with your assessment of entry - it's important, when all is said and done anyone buying ARM, MONI and BLM in autumn 2000 would need to be stunningly good at risk management to come out smelling of roses....;)
Exiting at the right time I consider more important than entry timing, but you still need to enter at a reasonable price to make profits consistently. I'd pretty well agree with your sentiments here, and it is unfortunate perhaps that so many programs concentrate primarily on entry - but that's really because you can't say 'exit now... look how well we did!' When the user might not have entered on cue. This, I think, has a knock on effect - the user sees that program X goes into huge detail on entry signals and assumes they must be important. I'd suggest that profit comes from taking a holistic approach - entry, exit, and risk all need to be controlled to consistently make profits. It's not so much a case of one being X% important while another is Y%, it's more a case of passing the 'O' level in all three, then gradually improving each as best you can.
Dave
 
DEFINATELY NO! go back to your thread about 'its your choice', if id had stuck with some simple trend lines and waited out, i wouldnt have posted that one.
 
Anyone got a ladder so I can climb out of this hole?

lol

MAy be it's just a question of trading style.

If I'm trading a daily or intraday chart for example, I don't stick around for any reversals or corrections back to any 'trendline'

My main point that I have failed to communicate regarding trend validity is as follows. I'm sorry, but I cant make it any clearer than this:

A trend line needs at least THREE points to be valid (a simple mathematic principle of any straight line) . Draw a trend line on any trend you care in your favoured charting package. THEN go to another charting package (such as the excellent prophet.net java charts if you want access to a good quality free package for comparison purposes). In your second chart, find the same three points. Try and join a straight line between them. Does it fit? Odds are it wont for the simple reason the calibration of scales will be different.

QED

Does this have implications for the way you use trend lines? For some of you it will, but it seems for most of you it wont!
 
Ah,
then it's the software, I'd suggest. For a downtrend if you pick three daily highs to join up then the scale in x or y (unless swapping log scales in) should be totally immaterial - you'll get a different angle of line possibly, but a straight line on one should still be straight on the other provided they have the same price for the high each time on the same date. That's geometry.

You might also cause a problem by comparing a chart package that leaves gaps for weekends with one that doesn't, but mathematically the original straight line trendline will conform to the equation y=mx+c where m is the gradient (difference in y divided by difference in x) and c is a constant offset from zero. If it's a straight line then a scale change in x or y can't make it non-straight as y=mx+c will still be the equation describing the line, only the gradient (m) will change... and all that'll do is make the line itself steeper or shallower, it won't stop it being straight.
Dave
 
It goes much deeper than this. Firstly, two points will define a straight line, though not a trend. For that the text books( and maybe maths) say you need three. ( I disagree with this). The real art and skill is trying to interpolate that line to a likely "best fit". Your best fit may well be modified when a clear third point arrives. The variation lies in both skill, as in accurately joining the two points on your screen, and whether you chose to use the high, or the close.
Secondly, I believe that trend lines can be synthesised to form parallelograms or tram lines. Here lies the second skill.Where to place the parallel line?
As for the herd mentality of all reversing at a trend line touch- yes, by and large true, but did you read the post about all the fish in the different size ponds? In brief, it says not every one is trading on the same timescales and one feeds off the next one up.
 
Re-Fish,
yes, and this isn't a disagreement really, but the point is that as long as enough people move at the same price point it's sufficient to create a move. Different timescales certainly come into play in this, what I call noise is another trader's swing, a daytrader with a leveraged trade will see things differently to an EoD trader just trading stocks with no leverage and a trade duration measured in weeks or months.
Having said that if you look at daily bars and the x and y scale isn't changing within the individual package then a straight line is a straight line. I wouldn't disagree that there's a degree of subjectivity in picking the points to use in some cases, but many trendlines jump out and bite you - 'obvious' lines are seen by many and are quite likely to come into play I'd suggest, whilst those requiring a bit of effort to pick out might not cause the expected reversal or whatever when the time comes for the price to collide with the line... it's arguable that if you have to struggle to join the dots, then maybe you shouldn't be trying to join them in the first place :)
My real argument, (friendly discussion style), is with the idea that a line in one program isn't there in another - that actually should not happen. This fired my interest as I develop software for charting myself (expression of vested interest to avoid angry mobs with torches) and whilst I can explain the gradient changing easily enough, I'd be upset to find that my efforts produced curves due to some odd effect I was unaware of!

Dave
 
trend lines are useful whenever i see charts you can see in whatever timeframe that breaks of them lead /have lead to very decent profitunity opportunity hmmmm.

of course like any method you will get reversals but there are just too many of them right out in the open so obviously stupidly simple that surely people , inteligent people dont use them to make money? do they ?

the best place to hide something of value is in the open.

jd
 
Interesting thread even though it was certainly making you a target for everyone to have a go at.

I started to reply to this then gave it some further thought because when I first started trading I did make a lot of money trading UK stocks using trend lines on a 1 min timeframe yet I find myself not using them now? I came to realise because I moved to L2 UK trading it sort of faded away - why - absolutely no idea.

I have since moved away from L2 and find myself to a certain degree 'returning to mama'. Time and time again I end a trading day and review my charts and find that there are many many cases where trend lines have worked perfectly. Would I return to trading off them - probably not but I do feel they certainly have a place on a chart.

Trend Lines do work - but I wouldnt plan my entry and exits on them.

Splurge
 
Prices do move in trends. I like to use trend lines to identify trends but i prefer wide trend lines so the price can penetrate a few % either side. I do use them for entry and exit.
 
Quote from Splurge:there are many many cases where trend lines have worked perfectly.

EXACTLY! The 'past' context of your statement says it all!
 
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