V.12:8 (321-324): On Trendlines, Money Flow Index And The Elliott Wave by Brian D. Green

On Trendlines, Money Flow Index And The Elliott Wave by Brian D. Green

Here's an example of wave and indicator analysis using the money flow index, trendlines and Elliott wave.

One of the most valuable lessons I have learned over the years is to approach problems systematically. Engineers compile theories, principles and equations into an organized toolbox of knowledge that can be used to analyze problems, while pilots use checklists to methodically follow procedures without omitting any critical tasks. A good technician and successful trader must use both techniques, learn from experience and continually study new techniques. Most important, however, he must develop a system based on his accumulated knowledge. Ideally, this system should be in a form that integrates all the tools at his or her disposal and facilitates the coordinated use of these tools.

One of the most important and easiest concepts to master in applying technical analysis is the use of trendlines. A trendline is simply a straight line joining a series of stock price tops or bottoms and represents areas of support and resistance. The significance of a trendline is a function of the data points used to define the line as well as how long the trend is in place. The longer a trendline is in effect and the more data points that are used to establish the line, the greater its significance is. Significant penetration of the trendline usually indicates a reversal or a slowing of the trend. Some technicians look for a violation of 3% to 5% of the price level. In addition, when a relatively steep trendline is broken, prices frequently attempt one final rally to previous highs. The old uptrend line is touched from below and then represents overhead resistance.