Basic Technique  |  MAR 1995

Trendlines by Bruce R. Faber

Trendlines by Bruce R. Faber How do you use trendlines? It's one of the most basic tools of investment analysis, yet it's not explained as clearly as it might. If you're just starting out, here's the scoop. Or if you're an old pro, here's a refresher. The trend is your friend."" It's one of the oldest investment adages, not to mention one of the truest. Determining what the trend is and, even more important, when it has changed is the most basic of all determinations in investment strategy. Trendlines are one of the simplest ways to discover what the trend is doing. Many successful traders use the trendline as a favored tool when it comes to the technical considerations of when to buy or sell. The trendline's popularity may stem from its deceptive simplicity. A trendline is nothing more than a straight line, and to draw a straight line, there must be at least two points. In drawing a trendline, the first of these two points is either the highest high or lowest low, while the second point, respectively, is the lowest high prior to the lowest low, or the highest low prior to the highest high. It is imperative that the trendline does not pass through any other price lines between these two points.

by Bruce R. Faber