TREND REVERSAL Before discussing the concept of a trend reversal, the proper way to draw a trendline must be discussed. If a market is in a downtrend, the trendline is drawn from the highest high to the lowest minor high before the lowest low on the chart. In sidebar Figure 1, two downward trendlines are drawn. Trendline A is incorrect because the line uses the minor high after the lowest low. Trendline B is the correct trendline because it uses the lowest minor high just before the lowest low. Finally, the trendline should not have any prices trading through the trendline between these two points. If the market is in an uptrend, the trendline is drawn from the lowest low to the highest minor low before the highest high on the chart. The trendline should not have any prices trading through the trendline between these two points. |
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