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TRENDLINES

Trends always end, and some of the same approaches used to determine trend can be used to confirm a trend reversal. Trendlines are also very powerful confirmers of trend reversals.

Chart 19 - The Chart below shows trendlines on a daily chart. The two-uptrend lines are drawn across Trading Cycle bottoms and their penetration confirms the top of the larger weekly cycles. Upside penetration of the downtrend lines confirms the bottom of the weekly cycle. The weekly cycle averages 21 weeks and once the downtrend lines are penetrated a sizable up move can be expected.

Downside penetration of the uptrend lines is different because the cycles have moved up for close to 20 weeks (in bullish right translation), and a relatively short decline into the weekly cycle bottom would be expected.

Stand-alone buy and sell signals do not consider the whole picture. By combining trading signals with daily and weekly cycles, retracements, trend indicators, channels, trendlines and other technical tools into Cycle Trading Patterns you can greatly reduce your dollar risk and improve your trading results.

Most people use trendlines on regular bar charts, but a close below a close chart trendline is much more significant than simple price penetration of a bar chart trendline.

Chart 21 - shows a typical combination of oscillators, trend indicators, retracements and mechanical entry signals. These combinations make patterns that are triggered by the mechanical buy signals.

Chart 21 – This is a Cycle Trading Pattern you can use in most markets and time frames. Watch for the cycle bottoms to occur in the timing bands shown in Chart 9, page 11 (not shown here to avoid “chart clutter”).

CYCLE TRADING PATTERN

A Cycle Trading Pattern of --

1.   a drop below the thicker EMA line,

2.   as the EMA line is moving up, and

3.   as the thicker MACD line is above the thinner line and moving up as

4.   a 20-day trading cycle is due to bottom.

5.   The entry signal is the mechanical setup and buy signal. The thick bar is the setup bar; the dot, the entry price.

These Cycle Trading Patterns have used only the RSI3M3 oscillator and detrend. Similar patterns can be traded with the 3-10 indicator, CCI indicator, long-term RSI, stochastic, MACD detrend, or any other oscillator that tracks prices. Cycle Trading Patterns with trade recommendations and commentary are used in Walter's advisory services. For more information, go to www.walterbressert.com.