How to Trade Using Trendlines

[Soultrader]

Trendlines are useful for support and resistance purposes as well as identifying a change in the trend. Different traders have different ways to draw trendlines. For example Victor Sperandeo, author of Trader Vic: Methods Of a Wall Street Master, uses the following rules:

- An uptrend line is drawn under prices, joining the lowest low to the highest pullback low which does not pass the line through prices in between. The line is then extended past the date of the highest high.

- A downtrend line is drawn above prices, joining the highest high to the lowest rally high which does not pass the line through prices in between. The line is then extended past the date of the lowest low.

One particular method I use in playing trendlines is to wait for the retracement once broken. For example, in a downtrend once price breaks the trendline I will wait until the next pullback using the trendline as support. Vice versa for an uptrend. There are other ways to time your entry once a trendline is broken. You can choose to use the TICK hook's or a Fibonacci retracement for an entry.

Remember, always use a stop.

See attachement for chart picture.

The chart shows a broken trendline, price retracement back to the trendline, and a lift for approximately 30 points.