Tag Archives: trend line

The Strongest Technical Signal for Google | 31st October, 2017

In keeping with the KISS principle, this trend line is very simple. I call it “Google’s Forever Trend Line”.

GOOG 2017
Click chart to enlarge.

This trend line has very strong technical significance. It is very long held and has been tested multiple times. It does have a reasonably steep slope, but because the entire history of Google price remains above this line a breach of the line would still offer a very strong bearish signal.

We should assume the upwards trend remains intact while price remains above the line. Each time price comes close to the forever trend line, and remains above it, then a low risk high reward entry opportunity to join the upwards trend is offered.

Published @ 01:51 a.m. EST.

3 Most Important Things to Consider for Candlestick Reversal Patterns | 11th October, 2017

This daily chart of the S&P 500 identifies 16 candlestick reversal patterns. Only reversal patterns are considered here, not continuation patterns.

S&P500 2017
Click chart to enlarge.

The first #1 and #2 patterns are both Three White Soldiers. Pattern #1 comes after a short sharp fall in price, so it may be considered a reversal pattern. But pattern #2 comes within an upwards trend, so it is more of a continuation pattern here and would not be considered a reversal pattern as there was nothing to reverse.

This leads to point number 1:

For a reversal pattern to have meaning there must be something to reverse. A bullish reversal pattern should come after a decline in price. A bearish reversal pattern should come after a rise in price.

Pattern #3 is an important reversal pattern and it does come after a steady rise in price. It correctly predicted a consolidation.

This leads to point number 2:

Reversal patterns mean a reversal of the prior trend to the opposite direction or sideways. They do not only mean a complete 180 degree reversal; sideways is a direction too.

The Shooting Star at #4 does not come after a bullish rally. It comes within a consolidation, so it should not be considered a reversal pattern. This is another illustration of point number 1.

Likewise, the Bullish Engulfing pattern at #5 comes within a consolidation. There is nothing here to reverse.

The Piercing Pattern at #6, however, does come after a short sharp fall in price, so it should be considered a reversal. It did correctly predict the following 7 days of upwards movement.

This leads to point number 3:

Reversal patterns make no comment on how far price may travel in the new direction.

The Morning Star at #7 is the second reversal pattern at lows after a short sharp fall. Along with the Piercing pattern, it correctly predicted the next rise in price.

However, the Bullish Engulfing pattern at #8 does not come after a fall in price. It comes within a consolidation. There is nothing here to reverse, so it should be ignored.

The Gravestone Doji at #9 is normally a bearish reversal pattern. Its forte is in calling tops. Here, it comes at the end of a bearish movement, so it is out of context. It cannot be calling a reversal in a bull move as there was no bull move prior to the pattern.

At #10 the Bullish Engulfing pattern does come after a reasonable fall in price, so it should be considered a reversal pattern. This pattern was followed by a persistent bullish move.

Like the Gravestone Doji, the Dragonfly Doji at #11 is out of context. Here, it is at highs and within a small consolation. Dragonfly Doji are bullish reversal patterns when they occur after a bearish move, but this one does not.

Another pattern within the consolidation at #12 should be ignored. There is no bullish move here to reverse for the Bearish Engulfing pattern.

The Hammer pattern at #13 does not come after a reasonable bearish trend; it was only the second day of a fall in price. There is nothing to reverse, so it should be ignored. The long lower wick is still bullish though. As a Hanging Man pattern it would require bearish confirmation in the following candlestick, which did not come.

The Hanging Man at #14 though does come after a bullish move. But the bullishness of its long lower wick still requires bearish confirmation, which did not come. The following candlestick is quite the reverse; it is another bullish signal. As #15 comes within a small consolidation, it may be considered as a bullish signal.

Finally, the Piercing pattern at #16 comes after a long upwards trend, so it should be considered as a bearish signal.

Published @ 05:57 a.m. EST.

Best Fit Channels | 26th September, 2017

If an Elliott channel does not fit a movement, then a best fit channel has to be drawn. The best fit is a channel which contains most or all movement within a trend and is tested the greatest number of times.

Example:

Gold 2017
Click chart to enlarge.

A channel drawn about this impulse using either of Elliott’s techniques does not contain all movement. Therefore, when compared to a best fit channel, Elliott’s channel drawn this way may not be as reliable in indicating when the movement has been over and there may have been a trend change.

Gold 2017
Click chart to enlarge.

Redrawing the channel as a best fit now contains all the impulse. Therefore, for this impulse on this chart, this best fit channel should be a more reliable and more conservative indicator of a trend change.

Published @ 04:36 a.m. EST.

2 Early Channel Techniques | 21st September, 2017

Channels drawn using Elliott’s techniques, outlined here, cannot be drawn until a reasonable amount of a wave has completed. There are two techniques to draw a channel about a new movement earlier.

1. BASE CHANNELS

Gold 2017
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This is the earliest channel that can be drawn about a new movement. This channel was drawn at the end of minor wave 2.

Base channels have two main purposes:

1. As the wave progresses the edge which is opposite to the main direction of movement should provide support or resistance. Here, the wave is down and the upper edge should provide resistance to bounces along the way down. It is the opposite for a bull wave; the lower edge should provide support for pullbacks along the way up.

A sloping trend line offering support or resistance can be used to place trailing stops.

2. A third wave may be identified or confirmed if it has the power to break through the base channel in the direction of the trend. A third wave should have the power to break above resistance at the upper edge of a base channel for a bull wave. Here, minor wave 3 should have the power to break below support at the lower edge of the base channel.

2. ACCELERATION CHANNELS

Gold 2017
Click chart to enlarge.

Later on in the development of a wave the base channel may be redrawn as an acceleration channel. This may be done after a third wave shows enough power to break out of the base channel in the direction of the trend, or it may be done earlier.

Acceleration channels are redrawn each time price makes a new extreme in the direction of the trend.

When a third wave is complete, then this channel is an Elliott channel (drawn using the first technique).

Acceleration channels have one main purpose:

1. To show where corrections within the trend find support or resistance, on the side opposite to the trend.

The side opposite to the trend may be used to place a trailing stop when trading the trend.

Published @ 06:22 a.m. EST.

3 Elliott Techniques For Drawing Trend Channels | 20th September, 2017

The three basic Elliott Wave channels are:

1. FIRST TECHNIQUE – IMPULSE

Gold 2017
Click chart to enlarge.

Once enough structure is complete to begin to draw an Elliott channel (about one third to halfway through a wave) use the first technique.

A trend channel drawn using this technique may show where the fourth wave may end. If the fourth wave is contained within the channel, then the fifth wave usually ends either midway or at the opposite edge of the channel. While most markets behave this way, commodities can be different. Commodities often exhibit swift and strong fifth waves which overshoot channels, as in this example.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

2. SECOND TECHNIQUE – IMPULSE

Gold 2017
Click chart to enlarge.

If the fourth wave is not contained within a channel drawn using the first technique, then redraw the channel using Elliott’s second technique.

This redrawn channel may show where the fifth wave may end: either mid way or about the side opposite the fourth wave.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

3. TECHNIQUE FOR A CORRECTION

Gold 2017
Click chart to enlarge.

If the movement is expected to be a correction, then it may be contained within a channel. Most corrections are contained within channels, but a few such as expanded flats are not.

The channel may show where wave C ends, either mid way or at the edge of the channel.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

Published @ 06:16 a.m. EST.

Learn Elliott Wave – Spot The Mistakes | 3rd August, 2017

For those who want to hone their Elliott wave knowledge, have a go at spotting my deliberate mistakes:

Gold Daily 2017
Click chart to enlarge.

This one is easy (at least, I think it is and I’ve really tried to make it easy).

There is one mistake in the triangle (just one!) and one mistake in the impulse.

Can you find them both?

Name the rules which I have deliberately broken here. Answers will be posted in comments tomorrow or the day after.

Note: During the process of preparing this post, I found a solution that fixes my main problem with the current alternate wave count. This solution will be published in tomorrow’s Gold analysis.

Published @ 05:49 a.m. EST.

3 Simple Trend Line Rules | 27th July, 2017

Trend lines used for support and resistance may have varying degrees of technical significance. Here are three simple rules to use to determine how much significance a trend line has and how much attention to pay to a breach.

Gold Daily 2017
Click chart to enlarge.

The stronger the line, the more important the breach.

Thus a line which is close to horizontal, very often tested, and very long held would be the most significant.

A line which is steep, only tested a very few times, and not long held offers very little technical significance.

On the monthly S&P500 chart, the green line has more technical significance than each of the yellow lines. The green line has a more shallow slope and is much longer held, although it has only been tested three times.

This analysis is published @ 05:08 a.m. EST.

Elliott Channels on the USD Index | 21st July, 2017

The USD index has been trending lower for six months now. A simple wave count at the monthly chart level may indicate what is most likely to happen next.

Gold Daily 2016
Click chart to enlarge.

The Elliott channel (maroon) about cycle wave III is drawn using the first technique: a trend line is drawn from the end of the first and third waves, then a parallel copy is placed upon the end of the second wave. The fourth wave is normally contained within that channel. The fifth wave ends either mid way or at the upper edge of the channel.

If the fourth wave breaches the channel, then it is redrawn using the second technique: a trend line from the ends of the second to fourth waves, with a parallel copy on the end of the third wave.

For both techniques, after a possible fifth wave makes a new high (or is a complete structure which is occasionally truncated), a subsequent breach of the channel in the opposite direction is an indication that the whole structure is over and the next wave is underway.

The Elliott channel (maroon) about cycle wave III is breached. This indicates that cycle wave III may be over and cycle wave IV may be underway.

To determine how cycle wave IV may unfold the guideline of alternation and an eye for the right look is used.

This analysis is published @ 06:30 a.m. EST.

Will Gold Backtest An Important Trend Line? | 18th July, 2017

This chart was last published on 9th of July showing a breach of an important trend line.

Gold Daily 2016
Click chart to enlarge.

Price is now bouncing up for another test. There is a little room still for a little more upwards movement, if price wants to come up to kiss the trend line.

Again, adding volume makes this simple trend line more powerful. The breach was supported by volume, but now the bounce is not. The volume profile is bearish, adding to confidence that price may now stay below the line.

This analysis is published @ 05:05 a.m. EST.

Learn Elliott Wave – Spot The Mistakes | 12th July, 2017

A second Elliott wave version of “where’s Waldo”. A fun exercise (for the geeks amongst us).

Test your knowledge of Elliott wave rules. Review this chart and find five deliberate mistakes:

Gold Daily 2016
Click chart to enlarge.

Two mistakes break core rules, but one involves some subjectivity and may need to be verified on lower time frames (an issue of subdivisions). But both look fairly obvious at this time frame.

Only one mistake is something that Motive Wave will alert you to, so the other four would be something you’d have to be aware of to avoid.

Price points are provided where you may or may not need them, so that provision of price points doesn’t alert you to where the mistakes are.

If anyone wants to have a go at their own (correct) wave count for Palladium, feel free to post in comments.

I’ll post answers to the mistakes, and my version of a correct wave count, after 24 hours.

Play in comments below.

Published @ 06:00 p.m. EST.

Gold Breached Important Trend Line | 9th July, 2017

On June 27th I published a daily chart of Gold with a simple trend line. In that post I posed the question: “How Gold behaves at this trend line in the next few days will be a strong indicator. Does the bull run continue or is it over?”

Gold Daily 2016
Click chart to enlarge.

The trend line was breached very clearly. The breach was followed by a typical correction up to resistance. Now price is moving down and away from the trend line.

Adding in simple volume gives this signal more depth. If a breach is supported by volume, then more weight may be given to its significance. The breach of July 3rd did come with increased volume, and volume increased further for the next downwards day of July 5th. After a small bounce to test resistance, further downwards movement for the 7th of July shows again strong support from volume.

Sometimes simple really is best.

This analysis is published @ 11:59 p.m. EST.

Learn Elliott Wave – Spot The Mistakes | 6th July, 2017

An Elliott wave version of “where’s Waldo” might be a fun exercise (for the geeks amongst us).

Test your knowledge of Elliott wave rules. Review this chart and find five deliberate mistakes:

Gold Daily 2016
Click chart to enlarge.

The mistakes are all fairly obvious. Two of them break core rules, one is a very common mistake, and another mistake is something that MotiveWave allows (but it should not).

Play in comments below.

Published @ 05:38 p.m. EST.

Drawing Bear Market Trend lines | 27th June, 2017

One of my favourite Technical Analysis texts is the classic “Technical Analysis of Stock Trends” by Magee. In this book Magee describes how to draw trend lines for bull and bear markets.

Gold Daily 2016
Click chart to enlarge.

To draw a trend line in a bear market draw the line from the high to the first major swing high within the bear market. Extend the line outwards. Assume the bear market remains intact while price remains below the line. When upwards movement breaks above the trend line, it is an indication of a potential trend change from bear to bull.

My definition of a breach is a full candlestick above and not touching the trend line.

This technique works on all time frames.

This chart is on a monthly time frame and indicates that Gold may remain in the larger bear market, which began on September 2011.

This analysis is published @ 03:02 a.m. EST on 28th June, 2017.