Stocks Technical Analysis Trendlines Part 4

Centerline

The centerline is drawn between a bottom pivot point and a top pivot point or visa versa. This kind of trendline can be used as a reference for action-reaction lines.

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Figure 4.28: Centerline.

In figure 4.28, a parallel line with the centerline through a previous high or low point is the action reference. Preferably, the action line and the price data should show a similar slope.

From here on, you can create a second parallel line; this is the reaction line projected into the future. The distance from the centerline is equal to the distance between the centerline and the action line.

Note how the prices turn at the reaction line and how they start moving up again with about the same slope as the original top-bottom centerline.

Multi-reversal Line

A multi-reversal line touches the bottoms as well as the tops of the price bars. Multi-reversal lines are mostly used as a reference for action/reaction lines but also for future support or resistance in relation with future price projections.

Figure 4.29: Multi-reversal line.

In figure 4.29, look at how multi-reversal lines show support and resistance to future price movement. Multi-reversal lines complement price targets, since they can be used as reference for future price support and resistance.

Note how all multi-reversal lines are close to the $25 target given by a Fibonacci projection (dashed horizontal line). This gives a good time estimate as to when this first Fibonacci target can be reached.

The centerline and multi-reversal line are most useful finding targets both price and time related.

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