Drawing trend lines to support a bull or bear case is common in this industry. And probably one of the most useless exercises. Technical analysts love to draw trend lines. And the TA junkies eat it up. A few problems arise. Do you use linear or logarithmic charts? Depending on the individual, lines can be drawn in hundreds of different ways for the same chart. A slight change of the slope of the trend line can make a huge difference on the position of the trend line on the right side of the chart. See chart below.
I find looking at charts useful. Such as finding support and resistance zones and recognizing certain patterns. But trend lines are useless. Successful traders that use trend lines are successful because of other forms of chart analysis, fundamental analysis, or statistical analysis. Not because of drawing a bunch of lines on a chart. If someone tells you to buy or sell a stock/currency based on trend lines, don't walk away. Run away.
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2 comments:
But both trendlines indicate support is broken. They are just a guide anyways and not the means to an end. I say use trend lines in conjunction with round numbers.
Both trendlines indicate support is broken but at different times. One tells you to get negative at one price and the other tells to get negative at a lower price. The difference is about 0.007 euros, about 1/2%, which is not trivial in the FX market.
Well, if you followed the conclusions from either of those trendlines, as the trend line "break" should have cascaded the EUR lower. But it didn't.
Even if it doesn't often work, people will still believe it because it looks good.
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