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Tradingthe Line  5   Ways You Can Use   Trendlines to Improve   Your Trading Decisions
EWI eBookTrading the Line — 5 Ways You Can Use Trendlines toImprove Your Trading DecisionsBy Jeffrey Kennedy, Elliott Wave...
Chapter 1Defining TrendlinesBefore I define a trendline, we need to identify what a line is. A line simply connects two po...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 1-2You can also map trendlines at...
Chapter 2Drawing TrendlinesFigure 2-1In this section, I’ll show you how Idraw trendlines. I’ll start with the mostcommon, ...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-3In Figure 2-3, that one little...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-5The price chart shown in Figur...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-7Notice the resistance it provi...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-9Now, here’s a neat little tric...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-11Most of the lines that I’ve d...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsTechniques for Drawing TrendlinesFigure ...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-15Figure 2-15, a weekly bond ch...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsDefining Trendline BreaksFigure 2-17In F...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-19Question: When is a trendline...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-21Let’s go back to a previous e...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-23In the subsequent advance in ...
Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading Decisions                                        ...
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Tristan de gouvion saint cyr share iews on improving trading written by Jeffrey Kennedy

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Investment expert Tristan de Gouvion Saint Cyr Shares his views. Tristan de Gouvion Saint Cyr ratify the points written on this book.

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  1. 1. Tradingthe Line 5 Ways You Can Use Trendlines to Improve Your Trading Decisions
  2. 2. EWI eBookTrading the Line — 5 Ways You Can Use Trendlines toImprove Your Trading DecisionsBy Jeffrey Kennedy, Elliott Wave InternationalChapter 1 - Defining TrendlinesFind out what a trendline is and what it represents.Chapter 2 - Drawing TrendlinesLearn how trendlines identify resistance and support. Also, find out how to draw trendlines and spottrendline breaks.About the AuthorJeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International(EWI). With more than 15 years of experience as a technical analyst, Jeffreywrites and edits Futures Junctures, EWI’s premier commodity forecastingpackage that includes Daily Futures Junctures, The Weekly Wrap-Up and MonthlyFutures Junctures. EWI has published four volumes of his Trader’s ClassroomCollection, and numerous on-line webinars and eBooks, which present Jeffrey’strading insights, market analysis and advice on how to apply the Wave Principlein real time. Besides analyzing markets, he is a popular speaker at internationaltechnical analysis conferences and teaches seminars for EWI on how to spot tradingopportunities using the Wave Principle and other technical indicators.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 2
  3. 3. Chapter 1Defining TrendlinesBefore I define a trendline, we need to identify what a line is. A line simply connects two points, a first pointand a second point. Within the scope of technical analysis, these points are typically price highs or price lows.The significance of the trendline is directionally proportional to the importance of point one and point two.Keep that in mind when drawing trendlines.Figure 1-1A trendline represents the psychologyof the market, specifically, the psychol-ogy between the bulls and the bears. Ifthe trendline slopes upward, the bullsare in control. If the trendline slopesdownward, the bears are in control.Moreover, the actual angle or slope ofa trendline can determine whether ornot the market is extremely optimistic,as it was in the upwards sloping line inFigure 1-1 or extremely pessimistic, asit was in the downwards sloping linein the same figure.Now we’re on to the fun part – draw-ing trendlines. You can do this severaldifferent ways. You can draw themhorizontally, which identifies resis-tance and support. Or, you can drawthem vertically, which identifies mo-ments in time. You primarily applyvertical trendlines if you’re doing acycle analysis.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 3
  4. 4. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 1-2You can also map trendlines at anangle, like you see in Figure 1-2, whichidentifies price and time. There’s reallynot a wrong way to draw a trendline,which is why trendlines are a simple,crucial tool.Chapter 1 Key Points • A trendline represents bull market versus bear market psychology. • Trendlines exhibit how optimistic or pessimistic the markets can be. • Horizontal trendlines identify resistance and support. Vertical trendlines identify moments in time. Diagonal trendlines identify both price and time.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 4
  5. 5. Chapter 2Drawing TrendlinesFigure 2-1In this section, I’ll show you how Idraw trendlines. I’ll start with the mostcommon, simple way to draw them.Just connect two extremes, two highsin this instance, to identify resistance,as seen in the line in Figure 2-1.Figure 2-2Another way to draw them is connect-ing lows, to identify potential support.For this example, refer to Figure 2-2,which shows a price chart of Google.If you connect the lows in this chart,you might be surprised what developswhen that trendline is extended.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 5
  6. 6. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-3In Figure 2-3, that one little trendlinebetween the lows in 2004 and the lowsin 2005 consistently provided sup-port for a number of retracements, orcounter trend movements, within theadvance in Google since then.When you’re drawing trendlines fromlow to low, you can do something elsewith them that I find pretty interesting.Oftentimes, I like to identify the lowextremes within a move and then takea parallel. In the example shown inFigure 2-3, look at the trendline fromthe lows within the advance in Google,take a parallel of that line off the ex-treme – the highest we’ve seen – andyou can see the most recent peak in Google, the upper line, provided resistance. It was just a simple trendlinedrawn on the lows and extended upward in a parallel line off the intervening extreme.Figure 2-4Next, in Figure 2-4, look where the up-per boundary line provided resistanceof the trendline. Notice there is anotheruse for it. The midpoint of the trendlineprovides resistance in four differentareas, which is why I include the centerpoint or the midline when I draw paral-lel trendlines or price channels.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 6
  7. 7. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-5The price chart shown in Figure 2-5is of coffee, and again, I’ve alreadydrawn a trendline on it. I connectedthe two extremes, points labeled 1 and2, which provided support for pointslabeled 3 and 4.Figure 2-6Let’s look at another example in Figure2-6, a cotton weekly chart, to exem-plify how useful trendlines can be. I’veconnected the lows, points 1 and 2, andtaken a parallel off the extremes of theprice move at point 3. This shows howa simple trendline identifies resistancein cotton. This is why you should drawtrendlines – because one drawn somemonths ago, some days ago, someweeks ago, even some years ago canstill be applicable today. This one littletrendline in the previous figure, drawnfrom one low to another low, was ef-fective on more than one occasion.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 7
  8. 8. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-7Notice the resistance it provided inFigure 2-7.Figure 2-8Trendlines are probably the most basicanalytical tool you can apply, whetherit’s a stock, currency or commodity;yet, they’re extremely effective. Moreoften than not, two parallel lines con-tain counter trend or corrective priceaction. Usually, it provides support,and you see prices either reverse nearthe lower boundary line or the centerline. As you can see in Figure 2-8, thelower boundary line provided solidsupport for a subsequent move up inprices.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 8
  9. 9. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-9Now, here’s a neat little trick. In Fig-ure 2-9, we use trendlines a differentway. By connecting the two lows, wedistinguish the breakout point. Later,it provides support when prices revisitthe same line (circled).Figure 2-10Or, we can connect the highs and takeit from an intervening low, as seenin this soybean weekly chart. Thereversal that occurred in price at thelower boundary line is circled.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 9
  10. 10. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-11Most of the lines that I’ve drawn thusfar have been from high to highs, tak-ing parallels off intervening lows, orthey’ve been from low to low, takingparallels off intervening highs. That’snot the only way to draw trendlines.Case in point – look at Figure 2-11.We connected the two lows, and itprovided support in Google for thesubsequent events shown. However,there was another way to identify sup-port in this stock without drawing thetraditional low-to-low trendline.Figure 2-12You could have drawn the trendline byconnecting the highs and then takingthe parallel off the intervening low, asshown in Figure 2-12. The circled areashows support.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 10
  11. 11. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsTechniques for Drawing TrendlinesFigure 2-13I’ve explained how to draw trendlinesfrom extremes – from high to high andlow to low. In Figure 2-13, I drew twotrendlines from significant highs to asignificant lows. Upon first glance, theinitial trendline does not provide theanalyst or trader with much informa-tion. However, if you draw a trendlinefrom a significant high to a low, or viceversa, and take a parallel of that trend-line to the most extreme point withinthe move, you might discover if thetrend will break or continue.Figure 2-14For example, I’ve drawn a trendlinefrom a significant low to a significanthigh in Figure 2-14. I then take a par-allel of that line off the lowest movewithin the price sequence. That trend-line identifies the end of one trend andthe beginning of a new one. As soon asprices began closing below the trend-line, the previous move was done.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 11
  12. 12. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-15Figure 2-15, a weekly bond chart,shows another example. Draw a trend-line from the high to the low, take aparallel of that line and move it overto the most extreme move within thedecline. Penetration of this line signalsthe completion of this declineFigure 2-16Look at Figure 2-16, which is the sameweekly bond chart as before. Draw atrendline from the low to the high, takea parallel of that line, move it over tothe right, to the most extreme portionof that move. You now know whatprices must do to signal the onset ofa new trend.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 12
  13. 13. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsDefining Trendline BreaksFigure 2-17In Figure 2-17, a much shorter-termtimeframe is illustrated in a 60-minuteprice chart of the E-Mini Dow. Draw aline from the low to the high then takea parallel to the most extreme portionof the move. When prices begin break-ing below this line, the previous moveis done.Figure 2-18You can utilize this approach withmuch sharper moves as well, suchas the decline in Figure 2-18. Whenprices begin moving above it or closingabove it, then that’s a good indicationthe previous move is done.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 13
  14. 14. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-19Question: When is a trendline breaka trendline break? Some people thinkcloses above or below trendlines in-dicate a trendline break. I prefer tosee price action begin moving aboveor below a trendline on a high or lowbasis. For example, in Figure 2-19, wesee some closing price action belowthe lower trendline which I don’t reallyconstitute as a legitimate break of thetrendline. Not until the high of the baris below the trendline (where the pencilis pointing), is there an actual break ofthe previous trendline.Figure 2-20Let me readdress the question to makemy point clear. What constitutes alegitimate trendline break? Well, inthis instance, in Figure 2-20, I’m notlooking for closing price action belowthe trendline, but rather the high of theprice bar forming below the trendline.In this instance, we did close below thetrendline (marked with the short lineand pencil). However, two or threeprice bars later, the high of the bar isactually below the trendline.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 14
  15. 15. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-21Let’s go back to a previous example.When the high of the price bar is belowthe trendline, it signals a sell off to thedownside.Figure 2-22The lows of these price bars in Figure2-22 were above the secondary trend-line and that confirmed the previousmove was done.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 15
  16. 16. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading DecisionsFigure 2-23In the subsequent advance in Figure2-23, when the highs of each price barbegin forming below the trendline, theprevious price move ends, and a newprice move begins.Figure 2-24As you can see in Figure 2-24, the lowof the price bar was above the second-ary trendline, indicating an advance.The low of the price bars are above thesecondary trendline, arguing that thisa legitimate trendline break, so pricesshould move up for a while.So, while you can draw trendlinesfrom different extremes, you can alsotake parallels of those lines, creatingprice channels. You can garner a lot ofinformation from the simple approachI’ve outlined here.You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 16
  17. 17. Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading Decisions Keep Reading! There’s More To Learn About Trendlines You’ve just read the beginning of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversals and Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount. You’ll learn: • How to draw and utilize a triple fan trendline • How trendline gaps and retests can provide trade setups • How you can utilize trendlines in conjunction with Elliott wave analysis • Jeffrey Kennedy’s powerful channeling technique • Plus, you’ll get questions and answers from Jeffrey’s subscribers Click here to learn more!You’re reading the first section of Jeffrey Kennedy’s 43-page eBook, Trading the Line — How to Use Trendlines to Spot Reversalsand Ride Trends. For a limited time, Club EWI members can purchase the entire eBook at a 30% discount.Go to: www.elliottwave.com/wave/TradingTheLineSpecialTo return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com 17

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