Stocks 101: stock market trend lines and bounces; Chart Analysis

There is no perfect way to draw a trend line and they cannot always be trusted in fact when choosing a stock and using trend line always cover every angle in the sense of potential output. For example if you believe a stock is going to break and continue to rise to anywhere between 12-16 keep a keen eye on it as soon as it hits 12 (keep a general eye on it the whole time but more so when one thinks it is about to peak). Greed will ultimately take anyone down. It is better to be safe and make some than to lose. Quicker the stock rises the riskier it becomes thus cause your risk to go up higher the stock rises. It is better to gain fifteen percent on ten stocks then it is to gain seventy percent on two and lose 10 percent eight times. Example is supposed to reflect less risky stocks versus potentially high yielding stocks but very risky as well.

I use trend lines to help determine the next move of the stock. In order for a trend line to become an “actual” trend line it must touch the line twice. Three times is even better! The more times it touches the line the more powerful it is in the sense of being a solid trend line. What people sometimes believe is if the stock breaks the trend line the stock will continue through the break in whatever direction the break took place. I sometimes like to predict if and when the breakthrough will occur by utilizing my trend line method as one can see in the picture indicated by the green circle. The red lines are the trend lines that were placed. I typically like going over several months in order to insure a more solid predictable line. Remember trend is your friend.

Several people like to play the bounces between the trend lines and that is how some people can create an income even in a bear market as you can see from the example from the down ward slope diagram. When the chart reaches the bottom trend line and it is not “predicted” to break though if one is skilled enough they can predict when the bounce is going to occur from the trend lines and when it is a good time to sell. The green circles represent the area in which the bounce occurred on the bottom trend line. Also marked with an arrow is a break through the top trend line. Sometimes they can be predicted better than other times and generally a break through the top is good for anyone but if it is not foreseen with a break through the floor this may be detrimental. Remember. The trend is your friend and I like to believe for conservative investing time is also your friend. If a stock over time has consistently grown and your research shows that it has a positive future then chances are it will continue to grow over time. Do not get discourage if it drops a bit. It is not surprising for a stock to bounce several times on an upward trend. For the day traders then it gets much more complicated. Please feel free to leave comments with questions and I can do my best to answer them. This is Stocks 101: Trend lines. Any advice given in this article is purely an opinion and the writer will not be held responsible for anything.