Trading Techniques  |  JUL 2005

Look Back Before You Leap by Richard Bergner

Look to the past to predict the future: It’s a new way to predict commodity price action as you study a chart. How can you find good trading opportunities? Imagine, if you will, all the ways you’ve read or heard about how to do so. But if you’re aware of those opportunities, you can be sure that others are as well, thus lessening your chances of profiting from them. If you want a different way to identify good trading opportunities, why not examine a market’s behavior in reverse? That’s right — look to the past to mark trends that have a good chance of materializing, as you step toward the future. REVERSE TRENDLINES One method I like uses reverse trendlines to home in on potential trading zones. But what are reverse trendlines? Everyone knows that by simply extending trendlines from the past, you can estimate the future and be better prepared to trade. But instead of using normal trendlines that connect support points in an ascending move and supply points during a descent, reverse trendlines are drawn along the highs when prices are rising and drawn along the lows when prices are falling. These lines represent momentum, which is reflected by the points of contention where supply and demand come together, and where either supply or demand overcomes the other, thus turning prices in the opposite direction.

by Richard Bergner