Drawing trendlines may seem simple, but there is a right way and a wrong way to plotting trendlines.
With so many different indicators,
oscillators, and moving
averages making up the science
of technical analysis, it is easy
to forget about the basics. One
basic rule of most trading strategies
is to always trade with the
trend, and it follows that early
recognition of a change in trend
would be important. Therefore,
it is imperative that we apply
techniques to determine what
the initial trend is so that we can
either trade with it or be in a
position to recognize when it has, in fact, changed direction.
Drawing a trendline can help us with both of these goals.
For our trendline to have credibility or predictive use, the
method used to draw it must be consistent, reproducible, and
objective. Without a clearly defined method, it is too easy to choose prices through which to draw the trendline based on
how we want the line to look because of our preconceived
ideas of the market we are charting. Our investment decisions
need to be methodical, consistent, and based on facts, not
emotions or wishful thinking. Once we have our definitions
and our method, we will be able to walk through the proce-dure for constructing a trendline.