I thought I'd start the first real TA topic on trends and trend lines. If the trend really is your friend (at least rising trends), then I guess it helps to be able to recognise your friend when you see him. Or, perhaps more importantly, to notice quickly when he deserts you.
Now I realise there are 101 different indicators to help you decide when a trend is starting and ending, but for the purposes of this discussion, I really only want to focus on trend lines.
So a few general questions:
- Do you use them?
- Do you find it easy or difficult to place them?
- What if the ideal line is intersected somewhere in the middle by one or two price bars? Do you ignore them or adjust your line?
- How much of a break through a significant trend line would you need to generate a buy/sell signal - or at least to make you look more closely at your other indicators?
I've included a couple of charts (the second one in the next message) where I've drawn some trend lines on a couple of stocks. The first one below is for Allied Leisure Industries (ALL).
Some questions about this chart:
- Do you think the trend lines I've placed are good, bad, or reasonable? If not good, why not?
- What would you have done at the point marked 'A'? The trend crosses at $3.76 while the lowest close just after that is at $3.65.
- If you wouldn't have sold immediately, do you think you would have continued to hold at least as far as point 'B'? That's just over a month.
- At the point marked 'C', the price bar (or candle here) dips through the trend line by about 4 cents. Apart from that, the line touches quite nicely at the two ends and also the point just down a bit from 'C'. Would you just accept this price bar dipping through the line or try and move the trend line somehow?
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