A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
The Right Way to Use Lines in Trading (Part 3)
04/15/2009 12:01 am EST
I have been working with lines as my main trading tool for more than 38 years now. Lines are simple, lines capture the probable path of price well, and lines work over and over and over. My favorite lines are the three parallel lines that make up Median Lines, but I work with all sorts of lines in my trading.
Now let's look at my “lines of choice,” Median Lines, on the same market move:
I find that when I trade currency pairs, I often use Schiff Median Lines and sliding parallels. Schiff Median Lines take the normal pivot A of the Median Line’s alternating A-B-C pivot set and shifts it down 50% and to the right 50% towards the B pivot. Sliding parallels are lines inside or outside the Median Line set that have the same slope as the Median Line, but are drawn from a regional high or low. Because these lines have the same slope as the Median Line, they carry the same frequency and often act as good support or resistance once they are tested.
I found a nice short trade using a red, down-sloping Schiff Median Line and caught the move from the upper Median Line parallel down to the Median Line. Then I found a nice short entry on the third test of a green inside sliding parallel that gave me a run down to an inside sliding parallel drawn in an equal distance above the lower Median Line parallel. Had I let the trade run with a trailing stop above prior swing highs, I could have caught the run down to the lower Median Line parallel, but it would have been a wilder ride.
I found another nice short at the re-test of the green, down-sloping Schiff Median Line from below, and this trade easily made it down to the lower Median Line parallel.
If you look closely, I added a blue, up-sloping traditional Median Line. When price tried to make new lows for the move and failed, I took a new long position on the re-test of the blue, up-sloping lower Median Line parallel which was still open when the current chart ended. We'll revisit this same Median Line at the end of this article series.
More tomorrow in Part 4.
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