trading tutorial helps trading in the commodity market and stock market

Reading Stock and Futues Charts - continued

How To Draw and Use Trand Lines and Channels

Overview

A trend is the movement of price either up or down over a period of days, weeks or even much longer. Prices that move sideways are said to be in a trading range (this will be coverered in a later chapter). In a bullish trend (i.e., when prices go up) the bottom of the channel - the bottom blue line - is called the support line because as long as the trend continues, prices bounce off of and do not penetrate this line. The top line is called supply line because in a valid trend prices bounce off (do not penetrate this line either) and are sold to push them down.

A and B

Pick the most prominent lows for the line underneath the prices. This is called the support line. All the prices between these two points must be above the line. Buy stocks when the price is near this buttom (support) line.

C

Draw a line parrallel to the support on top of this, the highest point between 'A' and 'B'. This creates the trend channel. Prices must stay inside this channel for the trend to be valid.

D

The move over the top of the channel is the first warning to exit your trade. Sometimes a stock will continue higher after this pattern. But, most of the time it's a sign of weakness.

E

This is another sign of weakness and another chance to end your trade. It is also a confirmation of the weaknees shown at point 'C'.

Table of ContentsPreviousNext Page
Home | Contact Us | Disclaimer | Privacy Policy | Small Investor