Trendlines and Channels
How Price Behaves at Trend Lines, Channel Tops and Breakouts — Over a Million Lines Measured
Every trader draws trendlines. The hard part is knowing what to do when price gets there.
Draw better trendlines. Trust the right ones. Trade them with a plan.
Will the line hold? Is the break real? Where does the stop go so you aren't shaken out of a good trade? This book answers those questions with evidence. Over a million trendlines and channels were drawn by one exact set of rules on 3,399 American stocks across more than twenty years, including more than 1,600 companies that later failed or were bought out.
The good news is that much of the classic teaching holds up, and the counts show you exactly how well.
The findings then become tools. You'll be able to grade any trendline quickly with a checklist built from the counts, and know what to expect at the top and bottom of a channel and after a break. You'll place stops that survive ordinary noise: setting the stop two ordinary days' range below the line cut shake-outs of good trades from 38 percent to 12 percent. You'll use the throwback, since about half of broken lines gave a second chance within four weeks, and the old line then held about six times in ten. And you'll plan every trade before you enter it: where to act, where you're wrong, how many shares to buy, and which targets are realistic.
Part I teaches trendlines and channels step by step, the way traders learn them. Part II shows how price actually behaved at those lines. Part III turns the findings into a trade plan and a 15-step routine you can use on any chart.
What the counts found
- Trade with the trend: rising trendlines held more often than falling ones, 45 percent against 37 percent on the famous third touch
- Long, gentle lines are stronger: rising lines spanning six months or more held about half their tests, while the steepest typically broke within two weeks
- Old support really does become resistance: a broken line turned price away from the other side about six times in ten, the strongest pattern in the book
- Confirmation works: waiting for a close 3 percent past the line cut false breaks from 26 percent to 15 percent, and breaks on heavy volume came back only about one time in eight
- The top of a rising channel is a powerful line: price turned down there 59 percent of the time
Three parts, 31 charts and diagrams, and a 15-step routine for any chart.
Look inside
A few pages from the paperback. Select a page to see it full size.
- The contents
- The opening of Chapter 1
- Figure 5.1: the return line and the channel
- Figure 14.1: stops at five distances below a rising line
Who it's for
Traders drawing their first trendline, and experienced traders who want to know which lines deserve their trust.
