the hAnDbook of teChnICAL AnALySIS■ (^) Confluence with other indicators: The more confluence or convergence there
is with other bullish or bearish indicators at the point of contact on the trend-
line, the stronger will be the rejection of price at the trendline.
■ (^) Preceding action: The contraction of cycle amplitude, cycle period, bar range,
and body‐to‐range ratio are indications of a potentially weak uptrend and a
potentially bullish downtrend. As such, this makes any trendline associated
with such trends also suspect and unreliable over the longer term.
trendline Measuring objectives
To forecast the minimum price target for a trendline, simply apply a one‐to‐one pro-
jection of the distance that price has moved farthest from the trendline from the break-
out point. Figure 5.42 shows a typical one‐to‐one price projection from the breakout
point. We see that prices bottomed very close to the minimum projected target.
strengths and Weaknesses of trendline analysis
Strengths
■ (^) Trendlines, being straight lines, will catch any trend changes effectively.
■ (^) Trendlines are able to identify trends without the need to identify specific price
patterns and formations.
■ (^) It is simple to construct and may be applied across all timeframes and markets
with equal ease.
■ (^) A trendline is viewable across all timeframes
Weaknesses
■ (^) Trendlines, just like moving averages, are also subject to whipsaws and are less
effective in erratic, volatile, or ranging markets.
■ (^) Because trendlines are geometrically based overlays, they are affected by the
type of scaling used, that is, ratio or linear.
figure 5.42 Trendline Minimum Price Target Projection on the 30‐min Chart of the
EURUSD.
Source: MetaTrader 4