The Relative Steepness of the Trendline
posted under
Philosophy of Technical Analysis
by ceecabolos
The relative steepness of the trendline is also important. In general, most important up trendlines tend to approximate an average slope of 45 degrees. Some chartists simply draw a 45 degree line on the chart from a prominent high or low and use this as a major trendline. The 45 degree line was one of the techniques favored by W. D. Gann. Such a line reflects a situation where prices are advancing or declining at such a rate that price and time are in perfect balance.
If a trendline is too steep (see line 1 in Figure 4.12), it usually indicates that prices are advancing too rapidly and that the current steep ascent will not be sustained. The breaking of that steep trendline may be just a reaction back to a more sustainable slope closer to the 45 degree line (line 2). If a trendline is too flat (see line 3), it may indicate that the uptrend is too weak and not to be trusted.
How to Adjust TrendlinesSometimes trendlines have to be adjusted to fit a slowing or an accelerating trend. (See Figure 4.13 and Figures 4.14a and b.) For example, as shown in the previous case, if a steep trendline is broken, a slower trendline might have to be drawn. If the original trendline is too flat, it may have to be redrawn at a steeper angle. Figure 4.13 shows a situation where the breaking of the steeper trendline (line 1) necessitated the drawing of a slower line In Figure 4.14a, the original trendline (line 1) is too flat and has to be redrawn at a steeper angle (line 2). The uptrend accelerated, requiring a steeper line. A trendline that is too far away from the price action is obviously of little use in tracking the trend.
In the case of an accelerating trend, sometimes several trendlines may have to be drawn at increasingly steeper angles. In my experience, however, where steeper trendlines become necessary, it is best to resort to another tool—the moving average—which is the same as a curvilinear trendline. One of the advantages of having access to several different types of technical indicators is being able to choose the one most appropriate for a given situation. All of the techniques covered in this book work well in certain situations, but not so well in others. By having an arsenal of tools to fall back on, the technician can quickly switch from one tool to another that might work better in a given situation. An accelerated trend is one of those cases where a moving average would be more useful than a series of steeper and steeper trendlines.Just as there are several different degrees of trend in effect at any one time, so is there a need for different trendlines to measure those various trends. A major up trendline, for example, would connect the low points of the major uptrend, while a shorter and more sensitive line might be used for secondary swings. An even shorter line can measure the short term movements
If a trendline is too steep (see line 1 in Figure 4.12), it usually indicates that prices are advancing too rapidly and that the current steep ascent will not be sustained. The breaking of that steep trendline may be just a reaction back to a more sustainable slope closer to the 45 degree line (line 2). If a trendline is too flat (see line 3), it may indicate that the uptrend is too weak and not to be trusted.
How to Adjust TrendlinesSometimes trendlines have to be adjusted to fit a slowing or an accelerating trend. (See Figure 4.13 and Figures 4.14a and b.) For example, as shown in the previous case, if a steep trendline is broken, a slower trendline might have to be drawn. If the original trendline is too flat, it may have to be redrawn at a steeper angle. Figure 4.13 shows a situation where the breaking of the steeper trendline (line 1) necessitated the drawing of a slower line In Figure 4.14a, the original trendline (line 1) is too flat and has to be redrawn at a steeper angle (line 2). The uptrend accelerated, requiring a steeper line. A trendline that is too far away from the price action is obviously of little use in tracking the trend.
In the case of an accelerating trend, sometimes several trendlines may have to be drawn at increasingly steeper angles. In my experience, however, where steeper trendlines become necessary, it is best to resort to another tool—the moving average—which is the same as a curvilinear trendline. One of the advantages of having access to several different types of technical indicators is being able to choose the one most appropriate for a given situation. All of the techniques covered in this book work well in certain situations, but not so well in others. By having an arsenal of tools to fall back on, the technician can quickly switch from one tool to another that might work better in a given situation. An accelerated trend is one of those cases where a moving average would be more useful than a series of steeper and steeper trendlines.Just as there are several different degrees of trend in effect at any one time, so is there a need for different trendlines to measure those various trends. A major up trendline, for example, would connect the low points of the major uptrend, while a shorter and more sensitive line might be used for secondary swings. An even shorter line can measure the short term movements
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