09 October 2010

line studies

Line Studies

Ellipse

An Ellipse is a non-analytical drawing tool used to highlight specific portions of a chart you believe are significant. For example, Ellipses can highlight a group of bars signifying an upward or downward trend.

You can also use Ellipses in conjunction with analytical tools. For example, you might use Ellipse templates to signify what you believe are market reversals. You can then apply a study that identifies market reversals to determine if your non-analytical interpretation meets the criteria of the analysis technique for market reversals. Combining non-analytical drawing tools with analytical tools allows you to gauge how well you are able to visually identify market phenomenon before incorporating technical analysis studies in your chart.

Error Channels

Standard Error Channels are calculated by plotting two parallel lines above and below an x-period linear regression trend line. The lines are plotted a specified number of standard errors away from the linear regression trend line.

Fibonacci Arcs

Fibonacci Arcs are created on a chart by first drawing a trend line between two extreme points, a trough and opposing peak. Three arcs are generated that are centered on the second extreme point and intersect the trend line at Fibonacci Levels, usually of 38.2%, 50% and 61.8% of the distance between a price maximum and minimum. The interpretation of Fibonacci Arcs involves looking for support and resistance as prices approach the arcs. Fibonacci Arcs and Fibonacci Fan Lines are sometimes used together to anticipate support and resistance at the points where the Fibonacci studies intersect.

Fibonacci Fans

Fibonacci Fan Lines are displayed by first drawing a trend line between two extreme points, a high and low. An invisible vertical line is drawn through the second extreme point. Three lines are then drawn from the first extreme point (the leftmost point) passing through the invisible vertical line with their slopes at the Fibonacci levels, usually 38.2%, 50.0% and 61.8%. These lines indicate areas of support and resistance.

Fibonacci Retracements

Fibonacci Retracements are displayed by locating two extreme points, a trough and opposing peak. Five lines are drawn: 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). These price levels often correspond to areas of support and resistance.

Fibonacci Time Zones

Fibonacci time zones are composed by dividing a chart with vertical lines spaced apart in a ratio adhering to the Fibonacci number sequence (1, 1, 2, 3, 5, 8, 13, etc.). The interpretation of Fibonacci Time Zones involves looking for significant price movement near the vertical lines. Also known as Fibonacci Time Series.

Gann Fan

A Gann Fan is drawn between a significant bottom and top (or vice versa) at various angles.

The idea here is to use any of the fan lines as either support (when retracing an uptrend) or resistance (when retracing a downtrend). Once a support line gives, for instance the 2X1 line, it turns into resistance, and the next one, 3X1, turns into support. This gives the trader a trading range that is difficult to fathom with the naked eye, Gann fan lines work best on medium to long-term charts.

Quadrant Lines

Quadrant Lines are horizontal lines which divide distance between High and Low of the period into four equal parts. The user defines two points on the price chart, and between them 3 Quadrant Lines are plotted. For significant results, Quadrant Lines should be drawn between a high and low point of price activity on a chart.

Raff Regression

The Raff Regression helps to identify possible areas of support and resistance and helps to identify when departures from the channel may signal potential changes in the price trend in the future.

Rectangle

A Rectangle is a non-analytical drawing tool used to highlight specific portions of a chart you believe to be significant. For example, you can highlight important areas for in-depth analysis and demonstration.

You can also use Rectangle in conjunction with analytical tools. For example, you might use Rectangle to signify what you believe to be market reversals. You can then apply a study that identifies market reversals to determine if your non-analytical interpretation meets the analysis technique’s criteria for market reversals. Combining non-analytical drawing tools with analytical tools allows you to gauge how well you are able to visually identify market phenomenon before incorporating technical analysis studies in your chart.

Speed Line

Speed Lines is an analytical drawing tool used to identify the support and resistance of a trend and the price level possible trend correction. A Speed Lines tool consists of an underlying trend line on which speed resistance lines are drawn above (representing time) and below (representing price). These speed lines are drawn based on time/price percentages of the distance between the beginning and the end of that underlying trend line.

Speed Lines were developed by Edson Gould and are based on dividing an underlying trend line by the percentages specified, for example, into third - 1/3 and 2/3. Speed lines help to measure trend correction and also the rate a trend line is ascending or descending - in other words, the speed of the trend.

Tirone Levels

Tirone Levels are a series of horizontal lines that identify support and resistance levels. They were developed by John Tirone. Tirone Levels indicates possible price movements from important highs and lows. Tirone Levels displays five lines ranging between the extreme high and lows and the adjusted mean price.

To draw a Tirone Levels on a chart two points must be defined: a point High to which there corresponds a ceiling price, and a point Low where price is minimal. The price distance between points is accepted for a unit of measurements - Range.

Trend Line

Trend Line is one of the basic analytical charting tools for detecting the principal trend. With the Trend Line one can estimate the strength as well as possible trend reversal points.

Trend lines are possibly the most useful and valuable tool in the study of market trends. Trend lines are utilized in chart analysis to determine the slope of the market trend and assist in ascertaining when the trend is changing. For the purposes of this explanation, up trend lines and down trend lines will primarily be used. Up trend lines are drawn under the rising stock chart lows. Upward moving trend lines are drawn under the stock connecting the dips to easily target a possible entry point. Down trend lines are drawn above the declining stock chart peaks. Downward moving trend lines are drawn on top of the stock, connecting rallies to easily target a shorting possibility. Markets rise and fall at a given slope. Trend lines help traders determine the slope of a given stock.

Trend Lines can assist in determining trends and can also alert you to changes in trend. They are easily applied to a chart and once applied can be easily adjusted, moved, extended or even duplicated.

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