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+++ et quisquis scandalizaverit unum ex his pusillis credentibus in me bonum est ei magis si circumdaretur mola asinaria collo eius et in mare mitteretur ... Experienced speculator and student of the markets for 20 years. My professional experience in the financial industry has included:... More
  • @ZenTrader - Jeff Pierce 2 comments
    Aug 23, 2012 10:50 AM

    Jeff, here is your picture from you link: http://screencast.com/t/YvFtOaay

    Notice how on the lower line of the channel it passes through the chart - right after the 23rd - not drawn to touch the two lowest lows in the period?

    Notice how on the upper line of the channel it only touches the two highest highs in the period?

    Most "channel" drawing tools maintain the parallel aspect of the channel lines.

    However, by definition, and if you want to get mathematically exact, the times that a channel drawing tool matches in a mathematically exact fashion exact fashion two exact highs, and two exact lows, and maintains an exactly equal parallel slope is rare.

    Hence why most experienced traders draw trend lines, in crayon, so as to get a more representative picture of what is actually going on. Rather than artfully "capture/force" the data of a given range period into the channel. Doing so ends up adding bias.

    Look at your example, the channel forces the perspective into a stronger up bias than drawing trend lines with consistency.

    Below I add two lines, one on each side: the one on the top matches the consistency of ignoring the high-high/low-low discipline that your bottom line used; the other on the bottom that maintained the consistency of touching the high-high/low-low that your top line used.

    (click to enlarge)

    Personally, I would have probably drawn them this way. If I were limited to using such sharp lines.

    60 min bar view, expanded to widest time range viewable

    (click to enlarge)

    5hr bar view of what was drawn in 60 min view, expanded to widest time range viewable

    (click to enlarge)

    daily bar view of what was drawn in 60 min view, expanded to widest time range viewable

    (click to enlarge)

    I always find it interesting where trend lines "go" when drawn on a small time frame chart and expanded.

    Of course the relative relationship of spacing between the x & y axis always greatly influences the "view".


    2012 08 23 Update

    Looks like my lines were lucky.

    (click to enlarge)

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  • Jeff Pierce
    , contributor
    Comments (939) | Send Message
    point taken. there are always varying ways of drawing trendlines. do you connect the tails or the bodies of candlesticks. often times I'll connect both and have a range for support and resistance.


    however you can't argue that it continues to make higher highs and higher lows, therefore it's trending up. At this point I'd be really surprised if we didn't take out the highs set earlier in the year on the Dow. from there it's anybodies guess.
    12 Aug 2012, 01:15 PM Reply Like
  • Centurion 9.41
    , contributor
    Comments (27) | Send Message
    Author’s reply » Well Jeff, to be honest my original comment via twitter was focused solely on the influence of discipline vs art on bias. Not as an attack on the way you chose to view the chart.


    Personally, IMO TA is an art. It's also much maligned and abused, but so are fundamental and quant methods. That said, I tend to use open/close vs high/low; but the candle/bar can time frame effect the choice. Like art, and unlike the GAPTA [generally accepted principles of TA], I draw lines to simplify the price action and hint at future points where I should pay attention. And I do so in crayola. ;)


    However IMO everything begins from one's allocation of capital, speculative risk "profile", and time frame. Price, volume, fundamental, quant, etc. all come after and are mere methods to define and control one's subjective risk.


    I would say this about your observation; "trending up"/Dow. IMO the Dow is a waste of time, it's a marketing tool for Wall Street. The retail public is not going to follow 500, and 30 is like most sports teams, something they can follow. Also, I would be very cautious of putting too much weight in a short time frame "trend" during the summer season. Too many of those who control the vast majority of capital are either on vacation or partially focused, not fully in the game. Notice the divergence in action between the Dow, S&P and R2000? It's never going to be extreme, but the variance of their divergence is greater during the summer. That should be a tell regarding putting too much weight in the short time frame price action of the summer months. To me the summer is an opportunity for individuals to get a bit smaller and to be a bit more patient waiting for the higher vol that the season brings to throw them a very nice ball.


    I think many share your view of taking out the highs set earlier in the year. But what does that really mean, to "take out"? Looking at a weekly and monthly chart, it looks like the distinction would be mere noise. More importantly, I think such thought creates a bias that is counter-productive to observing those who will really make such come to pass or not.
    12 Aug 2012, 10:16 PM Reply Like
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