THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RE-SULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTURE PERFORMANCE OR SUCCESS.
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Stocks & Commodities V. 25:10 (40-46): Trading Trendline Breaks, Part 3 by Sylvain Vervoort Copyright (c) Technical Analysis Inc.
TRADING TECHNIQUES
A Winning Game?
Trading Trendline Breaks
Part 3
In the first part of this series, we examined the application of trendline breaks. In thesecond part, we studied a basic system for creating trendlines. This, the third and final part of this series, takes a detailed look at how the system can be applied.
reviously, I discussed howtrendlines are plotted andhow they can be used. Thistime, I am going to showyou Abercombie & Fitch Co. (A
NF
).The numbers here represent the labelson the chart displayed in Figure 1:
1
There is a clear downtrend linebreak. There is a buy signal gener-ated by the trendline break simula-tion system (green up arrow) atabout the same level of thetrendline break. You open a longposition. Typically, you would set astop-loss just below the previouslow.
2
The next trend is up.
3
In February the trend starts accel-erating. You could either go forthe red uptrend line at the begin-ning of the acceleration or theblue uptrend line that starts shortlythereafter, which is even sharper.Applying the trendline rules asproposed in part II, you would,however, end up trading along thered uptrend line.
4
The end of the sharper uptrendline is not important because youwould end up closing your posi-tion at around the same price (theblue exit sign), whether you arefollowing trendline 3 or 4.
5
The sharper uptrend line that ini-tiates from trendline 3.
6
The last top is a typical example of a sharp move down at the top. Insuch a scenario, you should wait acouple of days before you start todraw the downtrend. This is be-cause you want it to start from adifferent bar than the high bar. Whenthis downtrend line is broken, youcan open a new long position.
PP
by Sylvain Vervoort
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