The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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Trend Analysis


5.6 Trendlines, Channels, and Fan Lines


provisionary (tentative) and Confirmed (valid) trendlines
A trendline is created by projecting a line forward into the future drawn from
two significant inflection points. For uptrends, a line is drawn between two sig-
nificant troughs and projected into the future, whereas for downtrends a line is
drawn between two significant peaks and projected into the future. When draw-
ing trendlines, lines must not cut through any price action at any point along the
line. A trendline is said to be only provisionary or tentative until it is tested for
the first time, that is, at the third point of price contact on the trendline. Once
tested, it is then regarded as a confirmed or valid trendline. All trendlines are
drawn between two inflection points except for bullish support lines and bearish
resistance lines in Point and Figure charting, where only one reference point is
used. Fan lines use two inflection points but only one point is located at a peak
or trough, while the other is along a predetermined vertical axis. Note that the
term tentative or valid is only applicable to conventional trendlines and not to
fan lines.

short‐, Medium‐, and Long‐term trendlines
A trendline may be defined as short‐, medium‐, or longer‐term depending on the
amount of price activity it contains above or below it. Longer‐term uptrend lines
contain more price activity above them than shorter‐term uptrend lines. The con-
verse is true for downtrend lines. See Figure 5.40.

trendline support and resistance: the behavioral Component
As mentioned in an earlier section, all price overlays, including trendlines, repre-
sent barriers to price action. As barriers, they provide support and resistance to
price. Price approaching a trendline from above will potentially experience support

figure  5.40 Short‐, Medium‐, and Longer‐Term Trendlines Defined by the Amount
of Price Activity They Support.
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