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Sunday, September 20, 2009

Comment from Uempel about me don’t like long term trend line

Here’s a chart from Uempel in response to my comment (refer to the bottom of this post about the original comment) about not in favor of a long term trend line:

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Well, we can discuss this topic here (Hopefully Uempel is not offended, whose opinion I must respect). The reason I usually don’t trust long term trend line is because it’s not easy to see so that traders may not agree on the same line. And the very basic idea for resistance and support to work is (besides supply and demand as we all know, but this also requires that the resistance or support should not be too old) people mostly agree on them and therefore trade based on them, so the simpler the line the more likely it’d work. And this is why I like horizontal line on swing low/high for support and resistance, because it’s easy for the most people to see and therefore act on.

Here’s the chart illustrating what I mean:

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P.S. I know we’re using different method so I don’t actually mean that I disagree Uempel’s chart. I just use this chance to discuss what I think about using trend line. And we’ll soon know whether this long term trend line work or not. And I really hope that trend line works!

Original comment and my reply is here:

  • The_Grim_Reaper 16 hours ago
    Excellent analysis cobra. I do wonder if that volume surge in UUP is some sort of headfake.
    I'm not sure if we're topped, but I've been passing around this chart which suggests the market is in and around a key trend line which could provide for a pivot point. Not to say the market will top here, because as I showed, there is a higher falling trendline it could reach before the final top. As for a rough zone to start thinking about shorting, this area makes a lot of sense. The line is not drawn perfectly with precision, I just made it rough. I could have drawn it slightly higher to leave a little vacuum for more upward movement, but only up to the 1080-1090 level max. The negative divergence might mean a deep pullback is coming. However, the MACD and breadth signals are not saying to short yet.
    http://www.screencast.com/t/PAYR95LHY1c

    Cobra  4 hours ago in reply to The_Grim_Reaper

  • Thanks for the chart. "Borrowed" into my chart book, but I usually don't trust such a long resistance line. But Uempel likes this kind of trend lines. We'll see.

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