Basic Trendlines – Our Simplest Tool
- Posted by JC Parets
- on June 6th, 2011
Some traders really like to complicate their charts. Sometimes I see way too many oscillators, enough moving averages to represent every color in the rainbow, Ichimoku Clouds with Bollinger Bands and Gann lines as far as the eye can see. It gets to the point where you can’t even tell what the actual price is doing. There’s too much noise in some of these charts. Remember, it’s only price that pays.
“The basic trendline is one of the simplest of the technical tools employed by the chartist, but is also one of the most valuable. An up trendline is a straight line drawn upward to the right along successive reaction lows.” – John Murphy
As much as I love my Fibonacci sequence, sometimes it’s best to cut everything out and just take a look at price action. Grab a crayon (not a pencil) and draw one line. That’s right. One line, imagine that? When I was a pitcher back in my baseball days and I couldn’t find the strike zone, I would just get back to basics. Go from the stretch and throw strikes. These lessons helped me more than I ever knew. The market is giving us mixed signals folks and it’s tough to find the plate, so lets get back to basics.
Here is a weekly Logarithmic Bar Chart of the S&P500 ($SPY):
Here is a weekly Logarithmic Bar Chart of the Nasdaq100 ($QQQ):
Here is a weekly Logarithmic Bar Chart of the Russell2000 ($IWM):
Here is a weekly Logarithmic Bar Chart of the Mid-Cap400 ($MDY):
The easiest Technical Analysis can sometimes be the most difficult to execute. Let’s not forget our roots guys. As of right now, price is telling us that the uptrend from the March 2009 lows is still in place. When (if) these levels are violated, then we’ll have to reevaluate our position. These charts above don’t give me any reason to get aggressively bearish. It was Louise Yamada, one of my favorite Technicians of all time, who recently said, “You never short an uptrend”.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He is a 10-year veteran and Market Technician who actively manages money incorporating Technical Analysis and Behavioral Finance into his practice. JC’s work has been featured regularly on CNBC, Fox Business, Bloomberg, Business News Network, Wall Street Journal and Yahoo Finance among many other financial media outlets. More...
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