You may have seen a TV ad where "traders" describe their strategies, and one says, "I trade on fundamentals." That sounds very reassuring -- except that, on any given day, “fundamentals” are a mixed bag:
- You might have a good U.S. employment report… but bad news from Europe
- A positive Fed statement… but a negative housing number
- Strong earnings… but slowing consumer spending
And so on. Which “fundamental” factor trumps the other? Which one carries more weight in your forecast? Your guess is as good (or bad) as anybody’s.
Your alternative is technical analysis, which forecasts the markets short- and long-term moves based on objective metrics, not guesses.
- The Personality of Elliott Waves
- Head and Shoulders Pattern
- Fibonacci Retracements
- Advance-Decline Line
- Sentiment
- Volume
- Trendlines
- Momentum Analysis Using MACD
Trendlines
A trendline represents the psychology of the market; specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control.
Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic, as it was in the upwards sloping line in Figure 1-1 or extremely pessimistic, as it was in the downwards sloping line in the same figure.
Now we're on to the fun part -- drawing trendlines. You can do this several different ways...
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