In Elliott Wave principles trendlines are used at all levels to tell the technician what to expect. Many days the trend is set early and bounces back and forth to trade with in those support or resistant lines the rest of the day. The other days you will have two channels to deal with.

Not support or resistant lines that are horizontal, but somewhere between vertical and horizontal. Angled lines.

When the market is going up the trend line is formed on the bottom and duplicated to the top.

If the market is going down the analyst draws the line on top and duplicates it to the bottom.

Sometimes this method has a certain amount of subjectivity rather them objectivity. Which always leaves one with questions or uncertainity. Yet, this is one of the most reliable, objective methods available.

There are four different colors of trend lines on the chart. Let me start with the red one first.

Notice I put an -xy- label on the first -1-2- pattern in the red lines. Sometimes that -1-2- comes into play, sometimes it does not.

So you can see the blue lines and red lines as an channels. The market kept knocking on the upper blue channel till it broke through identifying the channel that is in play(red lines). The two times it was knocking there was never an significant retracement(yellow lines identifying), but plenty of time to get an entry in the market on the low side or very low risk position.

The upper channel was fromed from the lower channel and put half way between both peaks since they were close together. That is the subjective part. Minor but still subjective.

Now to the top of the chart. Notice the red lines and the -1-2-fromation made inside the trend line. That is the signal of breakout and to get on board and new trendlines will have to be formed.

As you can see, most of the day the market stayed in the trendline. Diffidently an correction pattern in EW prinicples.

At the end of the day you can see a real basing going on. As the market is breaking out. Another solid consolidation letting one know that direction is changing most likely and plenty of time to get an low entry for low risk trade.

Now what to expect Monday. The blue lines just happened to coincide with the lower area and that upper area. Not always so.

Again the analyst is back to wondering which channel is in control here. Between the blue and yellow we have an diagonal triangle formed. The market will eventually break one way or the other to let one know which channel is in control.

Besides the channel the only resistance I see is the last high on this chart.

In trading between trend lines the analyst also looks for the market to be slower against the channel direction.

Using bars that have so many trades per a bar makes this easily identifiable. The more bars means the more it is to move the market. The longer the bar the less resistance in that direction for the market to go. So it is easier to identify the struggling areas.

Of course one can add the fibonacci projection tool to help assist in the destination point.

If the market chooses the blue lines then 2.382 is most likely and if it chooses the yellow 3.382 is most likely. It gives one an idea what to expect and a method to evaluate subjectively.

I expect the yellow channel, but opinions real mean little when trading. Except to make bad trades with.

charleydan
http://sillywaves.blogspot.com/