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Technical Analysis training course part 5 profitable long term trading with trendlines and support and resistance lines. Making money analyzing charts just once every month. This part 5 is an extension of parts 2 and 4 with a long term trading example using trendlines and support and resistance levels.
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Hallo this is sylvain vervoort with a special video about long term stock trading based on trend lines. This part 5 is an extension of parts 2 and 4 with a long term trading example using trendlines and support and resistance levels. If you like this video, pay a visit to my website at stocata dot org. The final purpose of this video series is to teach you how to trade successfully applying technical analysis.
Can we make a profit trading on trend line breaks using a long term monthly chart? Let’s find out!
We are December 28 1990. We are looking at a long term monthly logarithmic chart of a bank stock. Price is down more than 50% and has broken a long term support line. It is clear that for the moment we have no confidence in this stock and that we are only prepared to buy it when the long term downtrend line is broken by a monthly closing price.
Nine months later, September 1991, the long term logarithmic downtrend line is broken. Assume we have $5000 we can invest in this stock. We are buying 1100 shares for a total cost of $4,950. Let’s see if we can draw a new uptrend line.
The lows at the start of the up move looks OK point of view inclination, but actual prices are too far away from this trend line. However creating a parallel line with this line and moving it up, you can see that low prices show clearly the same inclination at the level of the actual price action. We will use this parallel trend line projected into the future.
Up to July 30, 1993 monthly closing prices remain above the trend line. Price made a new turning point up now and is moving very far away from the basic long term trend line. Time to draw a new sharper up trend line.
November 30, price is again far away from the trend line and moving up with high volatility. Since the start of the up move price has more than doubled. So, it is certainly a good idea to draw a third sharper uptrend line to keep as much profit as possible when a correction would start.
February 28 1994, the position is closed when price drops through the steepest trend line. This is confirmed as we later will see in candlestick patterns with a doji candle at the top and a following candle with a lower closing price. There is a nice profit with a buying price at $4.50 and a selling price at $7.81. Since you expect a reaction now, you open a short position here. Since you can not draw a downtrend line right now, you can keep a stop loss at the last top at $8.37.
May 31 1995, price falls back to a previous resistance level, now becoming support. Closing prices are holding above this support level. The original longer term uptrend line is also giving support. The downtrend line is now broken. Time to close the short position and open a new long position. You can keep a stop loss at the level of the long term uptrend line. We sold the stock at $7.81 and are now buying it back at $6.78, a small profit.
November 30 1998. Price falls very sharply, losing more than 50%. To give a better idea of what kind of move you are looking at, you can change the vertical price axis to a linear scale. Price made a low close to a support at $11.0. That month is showing a big positive white candle, now confirmed with another white candle with a higher closing price. There are 5 levels of support available now. It looks like it is time to close the short position and to open another long one. You can keep a stop loss at $15.8 or ultimately at the support of the last long term uptrend line. We sold the stock at $20.42 and are buying it back at $17.88. Once more a good profit.
February 28 2001, from the buying point price moves up slowly in line with the long term uptrend line. Because of the very big and sharp reaction at the buying point it was not possible to draw a trend line from the lowest point, so you would take the low of a previous bar. This trend line is clearly also in line with the long term uptrend and a support line. The trend line is now broken. You close the long position and open a new short position. You bought at $17.88 and are selling now at $23.9. A good profit.
Looking at the big picture since the start of the long term up move, it was clear that you expected a bigger long term correction. Reason why you kept the not that sharp downtrend line at the start of the downtrend. Price fell, but reacted back to this trend line, also exactly at the level of a previous support and now resistance line and bouncing back against the longer term uptrend line. At the next reaction you would draw a sharper downtrend line. This one is broken May 30 2003. Time to close the short position and open a new long one with a stop at a previous support around $15. You sold at $23.9 and are buying back now at $16.45. A very good profit.
We are closing the trade January 31 2008, (a few months later there was no more data for this stock, as it was bought by another company). The trend line drawn from the very volatile bars at the bottom is generally not usable. So, what you would do from the buying moment is keeping an eye on the nearby previous support line that moment in time. Since this support was holding, you could start drawing uptrend lines that gradually started accelerating. The last one is broken January 31 2008. You close the long trade bought at $16.45 and selling now at $37.62. More than a 100% profit.
Have a look at this table showing all transactions to look at the final result of 17 years of long term trading in this stock. Just looking once a month and just looking at trend lines, support and resistance lines and only making 7 trades.
We started with $5000 and now have more than $132,000. Not bad for an hour’s work once a month. That makes 2,600% profit on your starting capital or more than 20% compounded interest per year.
That’s it concerning this special video about long term trading based on trend lines and support and resistance lines. I hope you like it. Watch out for more. Stay in touch, subscribe to my channel, tell your friends and pay a visit to my website: stocata dot org. Have a nice day and I hope I see you in my next training video.
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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