TRENDLINE TRADING

TS2000i only

The problem with trendlines is that they are subjective.  The question always is where to draw the trendline?  Trendlines also tend to be more reactive than proactive.  By that I mean when the equity rises to where the trendline is drawn, it represents resistance or down to the trendline represents support.  If the equity breaks out above or below the trendline, you have already lost a big part of the move by the time the equity gets there.

Part of the answer is to draw trendlines automatically and Tradestation provides such an indicator.  However, it is virtually useless for trading as shown in the example below.  As you can see, there is no Buy signal and we are just waiting to see if QQQ reaches the yellow resistance trendline.

  

The next screen show shows my version of automatic trendlines.  The significants of this version with the red and green trendlines can easily be seen in the following screen shot.  The Buy signal is circled in gray.  You can see how it catches the very beginning of the move.

Another example shows a clear Sell signal in the magenta circle followed by a Buy signal in the gray circle.  Remember, I did not draw these lines after the fact, they were drawn in real time automatically and they do not back adjust.

The next screen shot shows a clear sell signal in the magenta circle as the equity falls below the green trendline.  Usually the "History" is turned off to avoid clutter, but in this case I turned the history on for the green trendline.  Citigroup finds a little resistance but not enough to cross above the red "Buy" trendline shown in the gray circle, and then continues down.

This indicator works on all markets.  Below is shown an example of Buy signals on the 20min ES emini.

The next example illustrates Buy and Sell signals on Crude Oil.

The Trendline Indicator also has another feature that can be turned on or off.  That is to project future highs and lows and or turning points as illustrated in the examples below.  The yellow crosses in the gray rectangle at the top right of the screen show the projection.

Seven days later, MSFT gaps up to within 0.25 points of the level that was projected seven days in advance.

The next screen shot shows a Buy signal on the QQQ and the beginning of a projection shown in the gray rectangle.

Eleven days later, we see the QQQ come within 0.25 points of the projected high that started to plot eleven days in advance.  A point to remember is that the red trendline signals "Buy" and when the red trendline re-adjusts, it does not signal an end to the long position. 

As a point of interest, in the next chart, you can see in a monthly view of the DOW as represented by DIA that the current high was predicted one year ago.

There is a problem however, using the Trendline Indicator alone.  That problem is illustrated below.  The Buy signal is in the gray circle.  As you can see, it would not have been a profitable trade as the equity quickly turned around.

Please click on the TREND CYCLE link in the frame on the left to see how another indicator in this Trendline Trading package is used to avoid such a losing trade.