Channel Lines and Their Relative Strength - Video and Transcript
Okay, this is a quick video on drawing trend lines and the significance of the trend lines for support and resistance. As you know, TurboTrading here, we're just, you only use, I only use a couple of, of patterns or indicators to trade stocks, the main ones being support and resistance levels, trend lines, and then the moving averages, but more of the moving averages are more on the date, on the daily chart, the 50 moving and the 20 moving. And these are lagging indicators. So I just use them more for direction of the market or to see if there is a change in direction. But somebody asked me the question that they were saying that the stock had traded through up through a declining tops line. And, you know, should we be looking to trade this? The thing about trend lines, and we'll call that in a general form, we'll call horizontal lines and angle lines, all trend lines.
The thing about trend lines is one. The key point is that you have to draw them in the same place. The rest of the world is drawing them. Otherwise, there's no; there's no relevance to them. For instance, let's say I drew a line in here. I thought, hm, this is support for the stock in here. And it just went through it like a hot knife through hash, you know, sold off so sharply. And you think, well, isn't that support? No, because nobody else in the world is drawing their line there. Some people might cause they thought that was a top, but in general, that's, you know, there's not going to be many people drawing their lines there, therefore, nobody, nobody else. Except you believe that that's a support level or a resistance level, as the case may be. Now I drew a line here because we did get some support, but when it got down, and it did get down to it and bounce back up, but it just continued on because the selling pressure was so great.
Any kind of support didn't help. Then we drew a line in here. This was the resistance area for these stocks here, here, and here, you see, and then it pops through it. And so I extended that line here, and now it's not an exact science. We did see that they did spike down through the support level, but it did hold. Why? Well, because this was the, you know, the pre-market level. And it was a pre-market level there was this resistance in here all gave this some support here, and you can see a gain. Here's the support gain. So I'm not the only person that drew this line in here to, for support and then to come in, to buy the stock.
Now, the other point is are the, are the channel lines that we trade typically, or I'd say statistically, the rising or the channel lines are not as strong of support and resistance as the horizontal support and resistance lines. This, the channel lines are great because you can see, you know, it gives good direction, good shows, great visualization on where the stock is going.
But we see that we joined the dot here, dot here, and a dot here. But when this stock broke up through this resistance level, here pulled back, came back, held support, allowed us to draw the trend line, held support on the support line. So when it pulled back here and held, did it hold the trend line, or did it hold the support line, the lateral support line? Well, I'm going to argue that it was both actually the combination of these two, points intersection with each other, gave it a strong support level of pullback traded off the 50 traded off the trendline traded off lateral support. There was three or four reasons why the stock bounced sure enough, off it went. Now it did get up to the top of the trend line. And when it did, there wasn't any other sort of resistance level for it. So you had to rely on the trend line, and everybody was, and sure enough, you get this candle, uh, you know, the Doji candle star X candles, red, you need to get out of the trade.
We saw then that it broke down. It held on the trendline. But when, but when we drew this triangle patterns, which is just the intersection of a declining channel and a rising channel, when it got to the apex of that channel, I said, okay, this is either going to pop or drop and sure enough, it dropped, but it dropped. Where did it drop you to drop it the trend line, or did it drop at lateral support? Well, I'm going to argue again that it was the combination of these three patterns, the apex, the wedge lateral resistance, and the declining tops line resistance, that forced this. That didn't force it, all the other traders that are watching this, especially those that were shorting stocks or had a long position went, whoops, we need to get out of this because there's massive, uh, overhead resistance for the stock, with the support and trendlines, and sure enough, off it came sold down, but it did sell down to the support line. You can see here, this has big support for pop down, try to gain held, and now trading back up.
So, the rising or falling trend lines in of themselves are not as strong as a lateral horizontal trendline by itself, where you get stronger support resistance is when all of the stars align. The 50 period here, the trading, the, you know, the trend line, horizontal lateral support when they all converge when they all converge, then that's much stronger than the single line in of itself.
But so in, in, in terms of support, the weakest in relative terms are rising or falling channel line, uh, lateral horizontal lines. And then the mixture of the lines are the most or give you the best support, resistance type patterns.
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