Stocks Technical Analysis Trendlines Part 3

Special Trendlines
Inverse Trendline

Sometimes it may seem difficult to start drawing a normal trendline.

In figure 4.24, the move starts with a sharp trendline up.

Next, the prices slow down for a short time; then subsequently continue with high acceleration.

In such a scenario, it is difficult to draw a trendline or price channel that would help to estimate future price targets.

Figure 4.24: Inverse trendline.

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This is where the inverse trendline comes in handy. The last price high in September and a previous end of July high pivot are good reference points for drawing the inverse thick trendline in figure 4.24. In an ascending trend, the inverse trendline is drawn from price tops. In a descending trend, the inverse trendline is drawn from price bottoms.

From the lowest bottom in August, you now can draw a parallel line with the inverse trendline, creating the other side of what probably will become a future price channel.

Figure 4.25:   Inverse trendline evolution.

Figure 4.25 shows the further price evolution perfectly in line with the trend channel created on the base of the inverse trendline. Sometimes you will see a normal downtrend line and an inverse trendline that have different slopes.

Figure 4.26: Normal and inverse trendline.

As you can see in figure 4.26, the prices touch both the inverse trendline and the parallel line.  The parallel line with the inverse trendline from the start of the downtrend forms a multi-reversal line that alternates between resistance and support. It also looks as if the downtrend channel is widening.

Figure 4.27: Normal and inverse trendline evolution.

Looking at the further price development in figure 4.27, it is funny to see how each of the trendlines does the job. The inverse trendline gives support, just like the multi-reversal line does, while the normal downtrend line is now resisting.

The inverse trendline is a good tool to find medium and longer term trends when it is not possible to draw a normal trendline in the early stage of a new trend development.

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