Nataly Kambur
Classical literature on stock market analysis puts great emphasis on searching signs of a trend change. Reversal patterns, trend lines and sloping channels are mainly used for this.
I suggest we dwell on sloping channels and trend lines.
In their books, a number of authors try to represent 'the most secure' methods of drawing these tools that help to 'most accurately' define the point where the trend changes and the trade should be made.
You can read Chapters 6, 7 of 'Technical Forex Analysis in Masterforex-V Trading System ' to review analysis of main classical approaches to use of these tools.
But we face the question of why there is such variety. Why do people that read classical literature continue invariably ruining their accounts? What cannot authors of these books tell us? Why do the authors of these books often contradict themselves?
As an illustration, I suggest analyzing Jack Schwager's book, Technical Analysis. Complete Guide'. The author gives the following recommendations on how to use trend lines and sloping channels:
«1. Falling prices approaching the line of an uptrend and rising prices approaching the line of a downtrend are often a good opportunity to open a trade in the direction of the main trend.
2. A break of the uptrend line (particularly if confirmed by the daily close) is a sell signal; the break of a downtrend line - a sell signal. To confirm the break, usually the minimum percentage of price change or the minimum number of daily closes outside the trend-line is set.
3. The lower line of the downtrend corridor and the upper line of the uptrend corridor serve as potential profit-taking areas for short-term traders.»
We can find countless examples of how dishonest such recommendations are in our trading terminals. After such specific instructions on making a trading decision, the author himself writes, literally in the next paragraph: «Trend lines and corridors are useful but their value is often exaggerated...»
I suggest answering the following questions:
1. Why do author of classical literature on technical analysis cannot reach consensus on definition of the term 'a trend line'?
2. Why do they give contradictory recommendations?
3. Why cannot we find a definition of a false break of a sloping channel or a trend line in any book?
4. How can we use sloping channels in our own trading?
You can find clues in Chapter 8 of the book 'Technical Forex Analysis in Masterforex-V Trading System '
Nataly Kambur
