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1998issue C121-5

Rule-based Trendline construction for testable entries

A usable Trendline follows a reproducible two-point construction. A Rule-based entry then waits for a close through that line, a failed continuation extreme, and a break of the nearby minor swing, with the Stop-loss order placed beyond the invalidated extreme.

  • A usable Trendline is drawn with a consistent, reproducible two-point procedure so the same chart scale yields the same line.
  • A complete Rule-based entry waits for a close through the Trendline, failure to print a new continuation extreme, and a later break of the nearby minor swing.
  • The Stop-loss order is placed beyond the failed continuation extreme so the loss is bounded before the position is opened.
  • The same two-point construction applies on every chart scale, and the three-condition sequence reverses for the long side.
Entries in this reading3 entries
Current trackTrendline128 readingsStop-loss order144 readingsRule-based entry174 readings

An objective two-point line

A usable Trendline must be drawn with a consistent, reproducible, and objective two-point procedure so the same chart scale yields the same line.

An uptrend line is drawn from the period's lowest low to the highest minor low that precedes the period's highest high. The segment must not pass through intervening price bars.

A downtrend line is drawn from the period's highest high to the lowest minor high that precedes the period's lowest low. That line is then extended to the right without intersecting price between those two points.

Invalid second points

Selecting a more extreme low or high is invalid if the resulting line cuts through bars. A second pivot is also invalid if it forms after the period's opposite extreme rather than before it.

Horizon and chart scale

Chart periodicity should match the chosen horizon. That horizon may be several months to years, several weeks to months, or less than a day to several weeks. The same two-point construction applies on every scale.

DJIA with the two-point uptrend line, 1997–1998

A trader should see a reproducible uptrend line anchored on the April 1997 low and kept under later pullbacks, so a close through that line is a testable event rather than a line that already sliced the 1997 advance. Daily DJIA levels and the slanted support line were read from the MetaStock screenshot covering January 1997 through August 1998; the July 1998 peak is the high marked E on that screen.
A trader should see a reproducible uptrend line anchored on the April 1997 low and kept under later pullbacks, so a close through that line is a testable event rather than a line that already sliced the 1997 advance. Daily DJIA levels and the slanted support line were read from the MetaStock screenshot covering January 1997 through August 1998; the July 1998 peak is the high marked E on that screen.DJIA · daily · 1997-01-01T00:00:00.000Z to 1998-08-31T00:00:00.000Z

Values are approximate to the nearest 50 index points because they were read from a raster, not a table. A second, shallower line also appears on the same screen and is omitted here. The lower volume pane is not plotted.

Three conditions for a complete entry

A complete entry rule waits for three conditions: a close through the constructed Trendline, failure to print a new continuation extreme, and a later break of the nearby minor swing in the new direction.

The same three-condition sequence, reversed, defines the long-side entry: break of a downtrend line, failure to make a new low, then a rise through the succeeding minor high.

Stop placement from the failed extreme

The protective Stop-loss order is placed beyond the failed continuation extreme so the loss is bounded before the position is opened. The stop can then be tightened as time in the trade increases.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
18 of 53 in the Trendline track
20001-3 pp.Next on TrendlineConstructing trendlines, breaks, and role reversalStart with a primary trendline from the earliest extreme swing to the next comparable swing. A secondary trendline that skips an unsustainable extreme can still be valid if it better tracks the underlying trend.
All readings on this track · 53 readings
  1. 1984Constructing the slow stochastic from a five-session range
  2. 1985Gold-proxy trendlines and a January support base
  3. 1988Construct a five-week new-highs total as a breadth chart
  4. 1988Stacked channel, trendline, and moving-average warnings in 1987
  5. 1989Auditing fifth-wave counts with equality, Fibonacci, and trendlines
  6. 1990Money-fund maturity as a companion Eurodollar chart
  7. 1990Constructing wave targets from ratios, triangles and trendlines
  8. 1992Nested time frames for trend and channel signals
  9. 1992A pre-trade checklist for trendline breaks and loss limits
  10. 1992Bond-fund timing inside trendlines, retracements, and dual averages
  11. 1992Two-point trendline construction from rise over run
  12. 1993Disposable chart ratings from confirmed level tests
  13. 1993When trend channels define fair value after dislocations
  14. 1993Valid trendline anchors for three-part reversals
  15. 1994Pairing stochastic divergence with trendline invalidation
  16. 1995Constructing measured targets after trendline breaks
  17. 1997A three-part pullback plan with RSI, Fibonacci retracements, and a tight trendline
  18. 1998Rule-based Trendline construction for testable entries
  19. 2000Constructing trendlines, breaks, and role reversal
  20. 2000Constructing speed resistance lines from trend extremes
  21. 2000Nasdaq tech cycle stages with a 15-day average and trendlines
  22. 2002Two-session candlesticks that test support, resistance, and trendlines
  23. 2002Constructing Fibonacci ratio grids from a peak and a trough
  24. 2002Evaluate trendline geometry before trusting a breakout
  25. 2002Trendline, volume, and breakout hypotheses versus cycle-end stories
  26. 2003Writing the long S&P 500 trendline and cycle junction as one hypothesis
  27. 2003A three-event trendline reversal checklist
  28. 2003Reverse-engineered Relative Strength Index price curves
  29. 2003Two-anchor trendline construction without cut-through
  30. 2004Treat a 15-minute e-mini stair-step as congestion under a daily lid
  31. 2005A 50-day average, a trendline break, and an open barrier flip
  32. 2005Matching a forty-day average to a crude trendline
  33. 2006Constructing a relative spread-strength oscillator for staged cycle confirmation
  34. 2006Constructing a log-change probability line for trend and range rules
  35. 2007Linked cross breaks as dollar-pair filters
  36. 2007A case study in support, resistance, and trendline role reversal on currency charts
  37. 2007Reading trendline breaks in a housing-sector case
  38. 2007Constructing replaceable trendlines for break signals
  39. 2007Reading trendline breaks before the mechanical signal
  40. 2007Trading choppy forex trends with channels and Fibonacci breaks
  41. 2007A stacked hypothesis from wave, trendline, ratio, and candle
  42. 2008Exit rules before entry: trendline, support, and stops
  43. 2008Capitulation headlines need trend confirmation
  44. 2008RSI divergence classes, ratio thresholds, and trendline tests
  45. 2010Support and resistance as falsifiable chart hypotheses
  46. 2012Reading a 2012 software directory as a breakout and channel case study
  47. 2013Treat a currency position as a regime, then map shared levels
  48. 2014Evaluating trendline swing size per market
  49. 2018Intermarket regime stress and the January 2018 trendline break
  50. 2018Weekly and daily Stochastic oscillator construction on a single daily chart
  51. 2018Constructing trendlines, support, and breakout targets from crowd exits
  52. 2019Trendline break and Fibonacci retracement as a falsifiable outlook check
  53. 2019Monthly S&P 500 false-break versus the decade trendline
By fieldEntry and exit rules206 readingsBy year199853 readings
All 128 readings tagged Trendline
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1989Adjusted net asset value, tighter reversals, and written stops on a fund point-and-figure chart1989Two-scale point-and-figure trendlines and stop placement1992Trendline holds, trailing stops, and industry rotation1992A pre-trade checklist for trendline breaks and loss limits1993Constructing layered stops from equity and structure