Do Trendlines Work?

Do Trendlines Work?

Jun 4, 2005

A recent forum on EliteTrader sparked a very long debate on the merits of trendlines [Ed.: Click Here for Thread]. The conversation and the opinions on both sides leave you right where you began – I therefore recommend you not waste your time reading it.

Instead take a look at the following set-up that watches for stocks that are poised to and actually are beginning a move outside of its channel. The set-up uses a filter that screens out all stocks not in a definite linear regression (or channel). Then it looks for those stocks making a move outside its recent range.

Here are several definitions of the alerts and filters used in this set-up:
Min Linear Regression Divergence
Crossed above resistance (confirmed)
Min Range Contraction

I call the set-up the Linear Regression Breakout. It looks for all the long opportunities and based on its two day performance, I’m very happy with the results. So, for the moment, I’d say trendlines Do work – and here’s my proof. Click on History to see the results yourself.

Linear Regression Breakout