|Date:||Sun, 27 May 2001 19:36:16 -0700 (PDT)|
Working through the points you raised :-
"...the downtrend becomes evident between 22nd and 30th of May" Not so. The downtrend only became evident on the 30th. Remember the definition of a downtrend (a lower trough after a lower peak) It was only on the 30th that prices moved below the trough of the 23rd, making a lower trough.
"The downtrend seems to be determined by connecting the closing price on each day and looking at the trend of that" Not so. See definition above. Remember that we are looking at the Red swing line. I may not have made that point clear.
"I don't see why the closing price should hold any particular prominence over any other" It dosn't. Closing prices do not come into swing charts. We are only interested in the highs and lows.
"I really have no control over when the broker carries out my order" Not so. My systems all require me to Buy or Sell at the Close. I enforce this very easily by placing Market orders just before the Close.
"It would seem that I can draw a rising trendline through the same data points where you have drawn a falling one" Not if you use only swing Highs and swing Lows.
Remember we are only looking at the red swing line here, we have not drawn a trendline on this chart.
"the fall in price (may have been) unrelated to Frucor itself" Absolutely true, but so what? I am not interested in the cause of the price weakness. You lose money on falling shares just the same regardless of the cause of the fall.
"you don't need the perfect share to trade" Right - just as well, because there is no such thing as a perfect share, or a perfect system. A good system though, will consistently make more than it loses, and will have clearly predefined points at which profits or losses are taken. This had been an absolute textbook example of a rising trend trade though. They are not all this clear and straight forward.
Would you like to see a really unequivocal system? One with no room whatsoever for misunderstandings such as the above? Buy on the White, Sell on the Black, computer draws the chart and makes the single decision required. Ever heard of Renko charts?
The Renko charting method is thought to have acquired its name from "renga" which is the Japanese word for bricks. Renko charts were introduced to the Western world by Steve Nison (a well-known authority on the Candlestick charting method).
In a Renko chart, a brick is drawn in the direction of the prior move only if a fixed amount (i.e., the box size) has been exceeded. The bricks are always equal in size. The default box size is calculated from the average share price over the charted period. Very active traders may wish to use smaller boxes, less active traders, larger boxes. The chart below uses the MetaStock default value.
To draw Renko bricks, today's close is compared with the high and low of the previous brick (white or black). When the closing price rises above the top of the previous brick by the box size or more, one or more white bricks are drawn in the next column. If the closing price falls below the bottom of the previous brick by the box size or more, one or more black bricks are drawn in the next column.
If the market moves up more than the amount required to draw one brick, but less than the amount required to draw two bricks, only one brick is drawn.
A new white brick indicates the beginning of a new uptrend. A new black brick indicates the beginning of a new downtrend. Since the Renko chart is a trend following technique, it is worthless in a trendless market, when oscillators work best. Its main value lies in flagging the end of an established trend.
Renko charting is a very old invention, but it is simple and effective. It works just as well today as it did when it was first used. (Long before any of us were born)
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