Using Trend-lines to make Buy and Sell Decisions
So we have seen the Sideways Channel and the W bottom. But how do we know when a stock is going to take off. The truth is we never really know. All we can do is make judgments based on what we see.
Do not forget we are only buying Stocks of companies that have
- Excellent Earnings per Share
- Strong acceleration in the growth of Earning per Share
- Excellent Revenue growth
So we are in essence giving ourselves a great head start and reducing our overall risk.
This next image is rather busy but it contains an abundance of core knowledge to enable YOU to make decisions.
- To evaluate an upward trend draw a line joining the highest highs
- For the floor of the uptrend draw a line connecting the lowest lows. The price here bounces 3 times of the bottom line, but then proceeds higher. The more bounces off a trend line the stronger the trend.
- A trend line is drawn to show that price has moved strongly past the previous high, this is a BUY Signal at $35.50.
- Finally the price is exhausted, and falls through the bottom resistance line at $53.
Buying and selling based on the trend lines, here, would have netted you a tasty 49%.
Alas, life is never that easy, and showing this in retrospect does mean we have the benefit of hindsight. This is why the finest minds of Wall St. have a whole host of other technical indicators that accompany price to enable you to assess trend quality. These will be discussed in other chapters.
There are still other very important lessons to learn.
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