How to draw trendlines methodically for Extremes (Valley’s and Peak’s)
How to draw trendlines methodically for Extremes (Valley’s and Peak’s)?
We need a mechanical and methodical way of drawing trendlines in order to connect latest swing lows and highs (valleys and peaks), we can’t lean on a subjective methodology, we can’t allow subjectivity control our trading decisions.
We all know what the result will be if subjectivity takes control of those trading decisions. This episode will explain the methodical and objective rules set that will allow any trader to draw trendlines the same way. By doing so we’ll all be looking at the charts with the same eyes and trendlines.
Drawing trendlines is not and should not be an art. Obviously it takes a while to master this method. It would be an art if everyone had their own unique way of drawing trendlines or you didn’t have strict rules on how to draw them.
There is no perfect way to draw trendlines and it seems that no one out there can agree on the best way to draw them, but here we do have very specific rules draw them methodically and mechanically.
Rules To Draw A Trendline
1. Identifying potential reversals. We don’t need an opposing zone eliminated in order to draw a trendline, it can be used as confluence. If an opposing zone is eliminated then we’ll have a trend.
2. We should be Connecting the last two bullish or bearish impulses on every timeframe of our sequence.
3. Learn as soon as possible when opposing impulses are being created on your trading timeframe, if that happens we must lean on timeframes higher than the one when we start seeing opposing impulses. If the trend is down and bearish impulses are being created, what would you think if the next impulse is bullish and stronger than the last bearish impulse? Wouldn’t you think the market dynamics for that timeframe are changing? Exactly. That’s the reason why the trendlines are drawn like this.
4. The break of a trendline with a full OHCL candle will create a potential imbalance.
5. Using trendlines in combination with multiple timeframe analysis and the sequence can give you the exact point where a new trade setup can occur.
6. Trendlines can signal that a change in trend may occur.
7. We’ll need at least two touches of the trend line connecting the latest two obvious valleys and peaks (swing lows and swing highs), the more touches the TL has the more structured and powerful the trendline and trend will be.
Rules To Draw A Bullish Trendline Connecting The Last Two Valleys
1. Always connect the latest two valleys to draw a bullish trendline.
2. There is no criteria for a “1st valley” other than that it meets the definition of a valley.
3. A trendline isn’t a trendline just because two valleys are present. The second valley must be higher than the first, and the price leg up from the second valley must make a higher high
4. This is for ascending TL, the opposite is true for descending TL
5. Once price makes a higher high than P1. Valley #2 will be confirmed.
6. Draw a bullish trendline by connecting last valley (V2), go down and left and connect it with previous Valley at V1.
7. If price makes a new Valley, we’ll need to adjust the trendline and connect Valley #2 and #3.
8. Valley 2 should never make a lower low than Valley #1. Valley #3 should never make a lower low than Valley #2
9. We must always update trendlines and connect the latest two valleys.
For more details and examples, checkout the video:
Feel free to ask if you have any queries…