Identifying important Turning Points in the markets, as early as possible, is as much
art as science.
Studying charts of the markets that one is interested in can provide useful information,
however, charts become dangerous when they become interesting.
That being said, a disciplined systematic approach to the problem might prove helpful.
Significant support points are defined as a bar on a chart that is lower than the four
bars preceding and the four bars following the low bar. Significant resistance points are
the opposite; a high above the four bars on either side. They're easy to recognize. They
stand out.
One useful analytical tool is the application of what is called the "Significant" trend
line. It takes its name from the fact that it connects one significant support point with
another and the same with significant points of resistance.
One more thing: Support lines are always sloping upward; never downward. Resistance lines
are always sloping downward; never upward.
Bull markets have no resistance; only support. Bear markets have no support; only
resistance.
As soon as a new rising significant support point is formed, the connecting trend line is
drawn and the previous significant low as an important Turning Point is identified. A new
rising trend is now "confirmed" and remains in effect until the trend line is penetrated.
The classic definition of a rising market is a pattern of higher lows followed by higher
highs.
Conversely, as soon as a new lower significant resistance point is formed, the connecting
trend line drawn, the previous significant high is identified as an important Turning
Point. A new declining trend is now "confirmed" and remains in effect until the trend line
is penetrated.
The classic definition of a declining market is a pattern of lower highs followed by lower
lows.
When two opposing trend lines are in effect, the market is said to be "consolidating".
As the converging trend lines close the distance on each other heading for a collision,
only the most nimble traders try to profit in those more difficult circumstances.
Remembering, "the trend is your friend", prudence dictates disengage to the side lines
and await the next Turning Point.
Another useful exercise is to apply the same techniques to charts of different time frames.
Daily charts are good for "fine tuning" but they also reflect "noise".
Weekly charts not only view things from a longer vantage point, they "smooth" out the
noise, giving more reliable signals.
Monthly charts are very long range and not as tradable. A significant point wouldn't
appear until four months have elapsed.
However, by extending significant trend lines in each time frame and observing when they
all tend to converge at the same point in price and time, a possible future important
Turning Point is indicated. Fore warned is fore armed.
Because No One Cares More About Your Money Than You