bounce will take place. It is when the outer trend line is broken that the
majority of the time the market incurs a major reversal, as you see taking
place around August 1, 2005, in Figure 6-3.
If you are an active trader and you use trading software that does not
have a moving trend line indicator, you will need to learn the skill of
drawing correct trend lines—with correct being the operative word. An
incorrectly drawn trend line can mean the difference between making and
losing money on a trade. Drawing trend lines is a skill that can be taught,
but I think it is always best to have an automated trend line indicated on
your software to keep up constantly with the trends you want to monitor.
In this chapter, we focus on finding, drawing, and monitoring three
trend lines:
1. An inner trend line
2. An outer trend line
3. A long-term trend line
These Three trend lines form on all time frames and in both uptrends
and downtrends
As the market moves, it will only move in one of three directions: up,
down, or sideways. When it moves in any direction, it waves. Those waves
become the emotional enemy of most traders. For some traders, it can take
years to trust those waves and ride them to their end target.