V. 20:5 (97-101): Working Money: Trendlines And Consolidations by Dennis D. Peterson

V. 20:5 (97-101): Working Money: Trendlines And Consolidations by Dennis D. Peterson
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Working Money: Trendlines And Consolidations by Dennis D. Peterson

Here’s a technique that produces more accurate trendlines.

Drawing trendlines correctly is more challenging than many traders realize. The rule is that the more peaks and valleys you connect with a straight line, the more valid the line is in defining a trend. But simply connecting a set of the more prominent peaks or valleys can cause you to miss consolidations, since the smaller peaks and valleys that are skipped over could be defining a consolidation pattern. Consolidation patterns are important because they can be used to gauge how much farther an equity will move.

When an equity is traded it is in an uptrend, a downtrend, or moving sideways. There are two types of sideways movements. One is what might be called an accumulation phase, which is a series of daily price changes that vary less than 5%. If the price was $50, then price would vary no more than $2.50 for several weeks.

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