Trendlines Lesson 2.6 Created by Sebastian Kunysz
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LESSON 2.6 TRENDLINES The purpose of this video lesson 2.6, is you guessed it, to expand on the previous lessons in this section. If I could use only one tool and one tool only, it would be the tool you are about to learn and that is the Trendline. A trendline is a line drawn manually on a chart, connecting two or more points and this line represents support and resistance. Trendlines can be used in any market and any timeframe including range bars. Trendlines are a very important part in our methodology and compliment it wonderfully. Coming up in this video, we will have plenty of time to exercise drawing trendlines. I will do it first and then it will be your turn and that will be your homework. Let s roll over to our trading platform and start exercising those 3
trading muscles. Alright, I have gone ahead and labeled what we have learned so far. Overbought, oversold and some candle patterns. Now, we are going to deploy our next tool, which is the trendline. We are going to start with going short. I find a low, like I did right over here and then I connect it with my pen. I click it and I connect it to another point right there and I connected it to this point right here. So, from here to here. When this line becomes penetrated with the price, because we did have a high and it was confirmed by our stochastic, we are overbought and can potentially go short. Then we have a TRADE ZONE and this is where we make our money. The focus of the next video will be to actually work within the trade zone but for now let s focus on drawing more trendlines and going short. Connect it and there we are. We ll continue to do the same with all the other areas that I labeled, and your homework will be exactly the same thing that I am doing. Deploying the trendline using everything you have learned so far. It is pretty difficult to draw the trendline incorrectly but there are better ways of doing it. The trendline is validated once you start to see price go through it and other traders begin to sell. The line is broken, we have penetration, and then we have a potential trade zone, (like I said before) 4
where we make our money. Let s continue labeling. I am not cherry picking these at all, I am just taking a random (the latest) price movement and just labeling it. That was a little bit messy, but we ll just go from there. Maybe we ll take a little scalp in there, but we don t know until we actually start working with the trade zone. Ok, that is it for potentially going short, so we have a point to connect, in this case it is a low. (within our strategy it s always a low.) We connect it to another point and when line is penetrated we have a potential trade zone. Remember, I am going potentially short because I have a high that is confirmed with the stochastic. You ll notice that every single point is the same, so I am going to delete all of these lines and then we are going to go long in the other direction. Let s start over, we are going long, so we have a point up here that I am going to connect our trendline to. We see that it was pierced up here but like I said, the focus of the next video will be taking a trade within the trade zone. That would have most likely not have been confirmed. But here, we have clear penetration and potentially a trade zone, to go long. We ll do the same thing right there - connecting this point to this point. I don t want you to get too concerned with drawing these trendlines because later on when we get to Methodology there is plenty and plenty of time to do this, as the market is actually plotting. I want you to be so tired of doing this that you can do it in your sleep. 5
Trade zone there, trade zone here and so forth, not much to it. Right there, see if I drew it from here it will still work, there just wouldn t be much of a confirmation there. Like I said it s just something you have to practice. As you practice as the markets are actually plotting you will know where is a better place to draw a trendline, and where is not. We have a potential trade zone here. Ok so, that s pretty much the next tool that we add before we start actually looking for a trade. Our attention really starts to shift now into other areas, which are right over here. Alright so that is your homework, deploy those trend lines and start looking for trade zones and I will see you in the next video. Trade Zones There is one more thing that I would like to add before we close out this video. There are different ways to draw trendlines, the way we discussed is not the only way. Later on, in this course, in our library section there will be more material on everything. The purpose of this video is not to be an allencompassing lesson about trendlines. The purpose is to narrow your focus. Alright, I ll see you in the next video. 6