Little Trend Line Trick!!!

I am back from my vacations. On the eve of my departure my friend and fellow trader Shree Mamgain had sent me this setup along with his chart. I thought I will share it with friends on the blog. Hope it proves to be a useful trading tool!!!

This little trend line trick comes from the book, Trader Vic - Methods of a Wall Street Master. This gem comes from Chapter 7 - Where Fortunes Are Made: Identifying a Change of Trend.

"...this one observation, considered alone, has the greatest potential for catching the exact highs or lows; it carries more weight in terms of probability that any single one of the other three criteria for a change of trend."

The 2B Rule

"In an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."

Here is an example chart:

"...the locals as well as the brokers who trade on their own account have a vested interest in driving prices slightly above or below these "resistance" or "support" points to force execution of the stop loss orders. This is called "taking out the stops." After the stops are executed, the market will readjust. This is exactly what happens in the case of most 2B's and is typical action in all markets."