Charts reveal the actions of bulls and bears. Bottoms of declines show where bears stopped and bulls regained control of the market. Peaks of rallies show where bulls ran out of steam and bears gained control. A line connecting two nearby bottoms shows the lowest common denominator of bullish power. A line that connects two nearby tops shows the lowest common denominators of he power of bears. Those lines are called trendlines.



Traders use them to identify trends. The most important feature of a trandline is its angle - it identifies the dominant market force. When trendline points up, it shows that bulls are in control. Then it pays to buy with a protective stop below the trendline.When a trendline points down, it shows that bears are in control. Then it pays to sell short and protect your position with stop above trendline.

It is better to draw the trendline through the edges of cognestion areas. Those edges show where the majority of traders have reversed direction. Technical analysis is poll-taking and polltakers want to track opinions of masses, not of a few extremists.Panic dumping by bulls at the bottoms and panic covering by bears at the tops create extremes, which appear as long "tails" on the charts. Markets constantly fluctuate, seeking an area that generates the highest volume of trading. A tail shows that certain price has been rejected by the market. It usually leads to a swing in the opposite direction. As soon sa you recognize a tail, trade against it. Place your protective stop halfway through the tail. If the market starts "chewing its tail," it is time to get out.

You can rate the importance of any trendline by examing five factors: the timeframe of the trendline, its length, the number of times prices touch it, its angle, and volume.
    The longer timeframe, shows that the trendline is more important. A trendline on a week chart identifies a more important trend than a daily trendline.
    The longer trendline is more valid. A short trendline reflects mass behavior over a short period. A longer trendline reflects mass behavior over a long time. The longer a trend continues, the gater its inertia.
    The more contacts between prices and trendline, the more valid that line. When the trend is up, a return to the trendline shows a lebellion among bears. When the trend is down, a rally to the trendline shows a rebellione by the bulls. When price pull back to a trendline and then bounce away from it, you know that the dominant market group has beaten the rebels.
    The angle between a trendline and the horizontal axis reflects the emotional intensity of the dominant market crowd. A steep trendline shows that the dominant crowd is moving rapidly.A relatively flat trendline shows that the dominant crowd is moving slowly. A shallow trendline is likely to last longer.Comparing angles of trendlines shows whether the dominant market crowd is becoming more bullish or bearish.
    Sometimes prices accelerate from their trendline. Then you can draw a new, steeper trendline. It shows that a trend is speeding up, becoming unsustainable.

When you draw a new, steeper trendline, tighten your stop, place it immediately below the latest trendline, and adjust that stop at every new bar. The breaking of a steep trendline is usually followed by a sharp reversal.
    If volume expands when prices move in the direction of a trendline, it confirms that trendline; if volume shrinks when prices pull back to a trendline, it also confirms the trendline. If volume expand when prices return to a trendline, it warns of a potential break; if volume shrink when prices pull away from trendline, it warns that the trendline is in danger.
    The breaking of a well-established trendline shows that the dominant market crowd has lost its power. You have to be careful not to anticipate trading signals - most traders lose money when they jump the gun.
    After a very steep uptrend is broken, prices often rally again, retest their old high, and touch their old uptrendline from below.

When that happens, you have a near-perfect shorting opportunity: a combination of a double top, a pullback to an old trendline, and perhaps a bearish divergence from technical indicators. The reverse also applies to downtrends.

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