Dean Cross

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Trendlines and Channels

How Price Behaves at Trend Lines, Channel Tops and Breakouts — Over a Million Lines Measured

Draw better trendlines. Trust the right ones. Trade them with a plan.

Every trader draws trendlines. The hard part is knowing what to do when price gets there. Will the line hold? Is the break real? Where does the stop go so you aren't shaken out of a good trade?

This book answers those questions with evidence. Over a million trendlines and channels were drawn by one exact set of rules on 3,399 American stocks across more than twenty years of market history, including more than 1,600 companies that failed or were bought out. You get the clear, measured picture most traders never see.

The good news: much of what you've been taught holds up.

  • Trade with the trend. Rising trendlines held more often than falling ones: 45 percent against 37 percent on the famous third touch.
  • Long, gentle lines are stronger. Rising lines spanning six months or more held about half their tests, while the steepest lines typically broke within two weeks.
  • Old support really does become resistance. A broken line turned price away from the other side about 6 times in 10, the strongest pattern in the book.
  • Confirmation works. Waiting for a close 3 percent past the line cut false breaks from 26 percent to 15 percent and breaks on heavy volume came back only about 1 time in 8.
  • The top of a rising channel is a powerful line. Price turned down from there 59 percent of the time.

What you'll be able to do:

  • Grade any trendline quickly with a simple checklist built from the counts.
  • Know what to expect at the top and bottom of a channel, and after a break up or down.
  • Place stops that survive ordinary noise. Moving the stop two ordinary days' range below the line cut shake-outs of good trades from 38 percent to 12 percent.
  • Use the throwback. About half of broken lines gave traders a second chance within four weeks, and the old line then held about 6 times in 10.
  • Plan every trade before you enter: where to act, where you're wrong, how many shares to buy, and which targets are realistic.

Clear, practical and written in plain English. Part I teaches trendlines and channels step by step, the way traders learn them. Part II shows how price actually behaved at those lines. Part III turns the findings into a trade plan and a 15-step routine you can use on any chart. Thirty-one charts and diagrams make every idea easy to see.

Whether you're drawing your first line or you've traded for years and want to know which lines deserve your trust, this book gives you the confidence of knowing what price has done, and a plan for what to do next.

Part of the Reading the Chart Series. For educational purposes only; not financial advice.

Look inside

A few pages from the paperback. Select a page to see it full size.

  • The contents
  • The opening of Chapter 1
  • Figure 5.1: the return line and the channel
  • Figure 14.1: stops at five distances below a rising line

Who it's for

Traders drawing their first trendline, and experienced traders who want to know which lines deserve their trust.

Where to go next

PaperbackKindleHardcover