Trendlines
We classify trendlines as being either continuation patterns or reversal patterns.
Small trendlines that form after a nice advance are continuation patterns that definitely have a bullish bias. Although the stock doesn't exactly fit the bullish flag, pennant, or wedge patterns, it still remains a strong stock in an uptrend that is temporarily “resting” before continuing its upward movement. These trendlines shall be played the same as the continuation patterns previously discussed. This is to say a volume surge is needed to confirm the breakout and the pricing action after the breakout should mirror the move into the pattern.
Bullish trendlines also appear after a stock has suffered a big drop and is forming a base. The pattern must be long and drawn out. This requirement allows time for mad stockholders to sell their positions and be replaced by new stockholders who aren't so upset and won't sell at the first sign of strength. Like the head & shoulders bottom reversal pattern, there really needs to be a massive amount of buying to be considered valid. Remember, an attempt is being made to reverse a large downtrend, and that takes great effort. |
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