Red Line: Now the bottom line
We Open a SHORT trade as the red line passes the Blue Line (bottom line) and the chart price continues below the green central Line.
Green Line: Middle Line
We set our moving stop loss in relation to this Green Line.
We get additional confirmation of a Short trend as all the coloured lines have passed the Grey line. To confirm the long term downward trend which lasts for eight or more months.
Usually a Short trend from a long one is obvious. As the lines twist almost at the same time. Except the 200 day MA.
Consolidation (STAY OUT):
Looking back at the chart we can see that in 2003 the lines become tighter and there isn’t really any trend to speak of. Once again, we would have been ‘Stopped Out’ (where our stop loss would have locked in our profit) prior to this event.
What you have to realise is when the lines are tight together like this and are almost a flat line, then this is when I would say the trend is Dead.
3 x flat line = Dead Trend.
We now can see where we should be opening a trade and closing it. Regardless of whether we are trading Long or Short. I am going to now give you a few extra pointers to REALLY confirm a price movement.
The first one is a simple one to use and see in any chart. It’s a common way of looking for confirmation in price movements and possible trends.
Feedback by an experienced trader: Most indicators seem to lose their credibility during consolidations. I noticed when day trading that if a tight consolidation goes on for long enough RSI and moving indicators all run down the middle of the consolidation and give false signals. Same with MACD and CCI. That’s why I would take the break up from 5450 as a signal to scale back in with selective buys but even that is risky. At the end of 2008/9 the consolidation was also difficult to read. CCI, MACD & RSI all gave false signals. Only 100 SMA & EMA continued the sell throughout. Calling the actual bottom was almost impossible. The consolidation broke to the downside before rebounding:
