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Drawing Trendlines

Drawing Trendlines

2009-11-02 22:53:00
Richard Krivo, Trading Instructor
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Instructor's Response:

When drawing trendlines, we want to take care that our lines do not go through the bodies of the candles themselves. It is alright if the lines go through the wicks but not the bodies. Take a look at the second chart posted below...

We also see that a breakout to the downside has occurred at our support line. If the yellow (open) candle closes below trendline support, that would negate that support line going forward as it would now be treated as resistance.

Also, when setting stops and limits, always have a least a 1:2 Risk Reward Ratio in our favor. In other words, we are looking to gain at least twice the amount we are placing at risk. Since on the posted chart, the risk is 140 pips and the gain is 80 pips, we have a negative risk reward ratio in place. Over the long haul, that will not work in favor of the trader.

 

chart 11 02 09 Achart 11 02 09 B

 

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