CONCEPT OF TWIN TRENDLINES - A BULLISH CASE
CONCEPT OF TWIN TRENDLINE
Long term wealth is generated through capture of trending move in a stock. The skill is in reading the chart and determining whether the trend has commenced. There are several means which are widely used to find the trend:-
-Oscillators
-EMA and its slope.
-Darvas box
-HH & HL market structure
-Formation of pivots
-Elliot Wave
All above methods are effective and can be used to take trade. However, to effectively time the trade I have put forth this concept of twin trendline. This is not a holy grail and several variations of this concept can be seen on the charts. The cardinal rule for following twin trendline concept is that the price shouldn’t have broken the previous swing low on weekly charts for a bullish long.
At times price breaks the box only to fall back in the box. It is not necessarily a false breakout but price needs more time to complete accumulation thereby preparing for next move. Twin trendline works best in such cases. This concept with its variations is applicable on all timeframes and on all asset classes. The twin trendline works most of the time but sometimes when the correction is deep even triple trendlines can be seen.
The price before trend reversal goes through motions of divergence, basing, retracement and time corrections. The stock alternates between time and price corrections within the box. After an extended price correction or retracement the price moves along the trendline thereafter to give a breakout from the first trendline to form a false higher high structure and later only to continue the trend along second trendline. (See above example)
The example of exide industries chart classically depicts the twin trendline concept. Reflex point (WILL ELABORATE SEPARATELY AGAIN) is penultimate point on the first/second trendline which needs to broken for establishment of trend. When price is consolidating a reflex point can be seen along second trendline. This point then forms a crucial pivot to understand the turn around in the price structure. In instant case of Exide industries 215 is the crucial resistance level(False HH) which needs to broken and sustained till the price reaches the mean of pitchfork ie around 240 levels. This will definitively give a HH structure for the stock.
Confluence of factors – Box being broken which should be with momentum and on volumes, reflex point on second trendline being broken, the price touches the mean of pitchfork, formation of HH structure.(One needs to monitor the period of time for all these happenings).
Time to take trade. It is felt after this price correction there may be a time correction wherein price may fall back to the box. A doji/hammer followed by a weekly green candle would be a time to take trade for capturing long term move or big move.
RSI. On both monthly and weekly charts is pointing northwards which is sure sign that stock should catch momentum. It is found that low priced stocks take time to catch momentum burst which happens only intermittently.
The angle of twin trendlines also matter to understand the geometry of vibration as to whether the stock is trending. Acute the angle longer it will take to catch momentum, obtuse the angle faster will be the move. The time spent in the box is also a measure for trend qualification. Sometimes extended time correction in the box is owing to bad results, overall directionless market, sector rotation or some bad news. When stock is in momentum the price at times crosses the reflex point on first trendline only to continue the trend.
Summary - Watch market structure of twin trendlines, wait for price to cross reflex point on second trendline, price should form HH structure, validate it through pitchfork, wait for retracement back to box, wait for candle sticks pattern of a doji and momentum candle on weekly chart to take trade.
Views Welcome
Regards
Disclaimer : This post is for educational purposes only
Long term wealth is generated through capture of trending move in a stock. The skill is in reading the chart and determining whether the trend has commenced. There are several means which are widely used to find the trend:-
-Oscillators
-EMA and its slope.
-Darvas box
-HH & HL market structure
-Formation of pivots
-Elliot Wave
All above methods are effective and can be used to take trade. However, to effectively time the trade I have put forth this concept of twin trendline. This is not a holy grail and several variations of this concept can be seen on the charts. The cardinal rule for following twin trendline concept is that the price shouldn’t have broken the previous swing low on weekly charts for a bullish long.
At times price breaks the box only to fall back in the box. It is not necessarily a false breakout but price needs more time to complete accumulation thereby preparing for next move. Twin trendline works best in such cases. This concept with its variations is applicable on all timeframes and on all asset classes. The twin trendline works most of the time but sometimes when the correction is deep even triple trendlines can be seen.
The price before trend reversal goes through motions of divergence, basing, retracement and time corrections. The stock alternates between time and price corrections within the box. After an extended price correction or retracement the price moves along the trendline thereafter to give a breakout from the first trendline to form a false higher high structure and later only to continue the trend along second trendline. (See above example)
The example of exide industries chart classically depicts the twin trendline concept. Reflex point (WILL ELABORATE SEPARATELY AGAIN) is penultimate point on the first/second trendline which needs to broken for establishment of trend. When price is consolidating a reflex point can be seen along second trendline. This point then forms a crucial pivot to understand the turn around in the price structure. In instant case of Exide industries 215 is the crucial resistance level(False HH) which needs to broken and sustained till the price reaches the mean of pitchfork ie around 240 levels. This will definitively give a HH structure for the stock.
Confluence of factors – Box being broken which should be with momentum and on volumes, reflex point on second trendline being broken, the price touches the mean of pitchfork, formation of HH structure.(One needs to monitor the period of time for all these happenings).
Time to take trade. It is felt after this price correction there may be a time correction wherein price may fall back to the box. A doji/hammer followed by a weekly green candle would be a time to take trade for capturing long term move or big move.
RSI. On both monthly and weekly charts is pointing northwards which is sure sign that stock should catch momentum. It is found that low priced stocks take time to catch momentum burst which happens only intermittently.
The angle of twin trendlines also matter to understand the geometry of vibration as to whether the stock is trending. Acute the angle longer it will take to catch momentum, obtuse the angle faster will be the move. The time spent in the box is also a measure for trend qualification. Sometimes extended time correction in the box is owing to bad results, overall directionless market, sector rotation or some bad news. When stock is in momentum the price at times crosses the reflex point on first trendline only to continue the trend.
Summary - Watch market structure of twin trendlines, wait for price to cross reflex point on second trendline, price should form HH structure, validate it through pitchfork, wait for retracement back to box, wait for candle sticks pattern of a doji and momentum candle on weekly chart to take trade.
Views Welcome
Regards
Disclaimer : This post is for educational purposes only
The concept of twin trendlines work. Just an update on Exide Industries.
Disclaimer : This post is for educational purposes only
Views Welcome
Regards