Original subtitles

Drawing and Efficient Use of Lines Retail traders who are new to the market

to like to draw lines to identify support and resistance levels, in the

that the market will respect them.

But you need to be clear about something.

The market doesn't care how many lines you have drawn on the chart, how thick

thin they are, or their color.

Before we get into some of the more complex concepts about using lines

efficiently, let's take a step back and look at the best way to draw lines.

With all the tools I use for my analysis and trading, I am looking for something

that can be of genuine use in a trading sense, that can use hidden information

to give me an edge.

I believe you should always adopt a critical view of everything you are

and test it out yourself to see if it is genuinely something you can use.

The first step is to question the accepted theory you are expected to

Subsequently, you need to take that concept and apply it in a creative and

adaptable way.

Let's take this chart as an example to further develop this idea.

As we can see, it is a market in an upward trend.

The manuals on classic technical analysis will tell us to draw a line

two relevant price lows to create the uptrend line or demand line, and that we

can also do the same for two highs to create a supply line.

In this case, that supply line would not be a downward trend, as it is

connecting two rising highs.

But this is not important right now.

Personally, I would have done something like that at the beginning of the chart.

And this is one of the big problems with drawing lines.

Most of the time, it is tremendously subjective.

That is the way I would have done it. But that doesn't mean it's the only or

best way to do it. And this, in itself, is already a problem.

Obviously, the lines will change as the price behavior develops.

Let's see what happens next.

Well... The market has stopped respecting those limits and has

pivots above and below on which we should draw new trend lines, leaving

something like what we see now in the hope that the price will continue to

respect these and that we can take advantage of it. And here we begin to

real problem with this very rigid and strict method of traditional line

If we connect the pivots further apart to contain all the price action within

their limits, What we get is a huge area where the price could fluctuate without

really providing us with interesting zones for trading opportunities.

And not just for the purpose of executing trades, we wouldn't really be

assess the market sentiment based on the long -term dynamic either.

The market could move between these two limits as I show in this example, but

should we still consider the market to be bullish based on this?

That doesn't seem quite right to me.

And I am not saying this because I think there is no way the market would

respect that type of cone -shaped dynamic, but because of the distance

by the connection between the two lowest lows.

Imagine that we are in an even higher time frame, looking at a monthly chart,

and the market never even comes close to that trend line connecting the two

lower lows.

Would we say that because it is above said imaginary line?

The long -term context of the market is bullish regardless of what happens

inside? I don't think this is useful from a trading approach at all. We need

use the tool in some other way so we can adapt our approach as quickly as

possible to market changes.

Going back to the initial example, something like this would be what we

get on the chart if we continued modifying the lines to try to adapt our

approach in a traditional way.

From my point of view, this does not make any operational sense.

We've added a lot of information with no validity to the chart, so it's

definitely not something we would want to use.

Now, let's look at another way of approaching the same chart analysis in

of tracing the dynamics with lines.

The basic and fundamental premise will always be that the market should contain

most of the price action that is observed on the chart, while

visually respecting the price turning points.

This dynamic could be representative of the real behavior of the market in the

first part of the chart, where approximately 90 % of the action is

within its limits, providing very visual areas of price reversal.

The question would be, to what extent are we going to maintain the dynamic?

Well, until the market tells us. We will look for the market to continue moving

between these limits, but it will ultimately be the interaction between

and demand that tells us the current market condition.

When observing something of this magnitude, We must understand the

conditions of the market have changed in a certain way and have caused its

participants to react with a greater bullish sentiment, so the dynamic that

price had been following has now ceased to be valid.

There will be times when nothing is very clear and you're not visually sure of

the current dynamic at all.

There is absolutely nothing wrong with this. It's normal.

Always try to follow the premise that identifying market structures and

should be something very visual.

and not at all forced.

A moment will arrive when you start to see something that could be identified

a dynamic that the market is following, as in this example.

What strikes me here in particular is how those three rising lows have been

respected. At that point, I would draw an uptrend line connecting these points

and place a copy above the upper pivot point.

And this would be the result.

You could leave this on the chart initially and continue to evaluate its

behavior. to see if it needs to be actively adapted based on how the market

develops. This is the key.

No drawn lines should be left there permanently.

The price dynamic changes in line with the market conditions and we must adapt

our approach accordingly.

What has happened is that the supply line has continued to channel future

action in a very genuine way, until reaching a point of bullish excess and

overbought condition that might have been seen by more aggressive traders.

as an interesting area in which to look for an opportunity to sell.

On the other hand, in the lower section, the demand line provided an excellent

area in which to look for a potential long position.

It also left a very evident false breakout.

These types of opportunities are high quality since they combine the

of the false breakout within a bullish context and also an oversold area

according to the latest market dynamics.

Many of you undoubtedly saw it too, and indeed, I would also consider that

bullish working dynamic, although it denotes some momentum due to the

of the slope.

Again, we have applied the same logic when drawing from the previous dynamic.

We connect the last lows that seem to be respected and we draw a copy of that

line above to create a bullish channel.

As you can see here, throughout its entire development, the chart's dynamics

have changed several times in speed, depth, and width.

In short, this is what we are looking for when drawing lines.

that they give us the bigger picture of what is happening in the market in the

most objective way possible, for which we then need to adapt our approach as

quickly as possible.

And finally, what if we want to see the bigger picture of the entire last big

bullish movement?

I would generate a channel like the one in the example, which follows the basic

premises of containing most of the price action that is observed on the chart,

while simultaneously visually respecting the turning points.

The chart used to develop this concept continues to develop.

And here we see how the dynamic was broken in the first place with the last

upward excess generating an overbought condition with a subsequent distribution

scheme that gave rise to a bearish trend whose continuation also left a very

well -channeled bearish dynamic.

This is why it is useful to draw lines, so we can identify the context that is

determining the control of the market and so that our trading approach is

focused only in that direction.

How long will we look to trade in that direction?

Well, until the market guides us by abandoning the movement dynamic it was

following until then. Let me introduce another crucial concept in our approach

to analyzing trend lines in the most efficient way possible.

Our task as analysts with regard to drawing lines is, in addition to the

mentioned idea of being mentally flexible, so we can quickly adapt to

the environment, to test possible dynamics that the market might follow.

This means that as soon as we see two well -defined highs or lows, we are

to draw a line and project it into the future to see how the market reacts once

it reaches it.

We do not know in advance which of these lines it will respect, if any, so our

approach should always be to propose and let the market confirm if any of them

have correctly identified the dynamic established by the current conditions.

Let's continue working on the same chart, but looking at a more recent

time.

What we are going to see from now on is very important for our analysis, and we

already know that a large part of our success will depend on performing a good

analysis.

If we open a chart and find this type of behavior, what are we seeing?

We should be able to quickly visualize the potential change of character, where

the market changes from a bearish to a sideways state.

Furthermore, we should already start drawing lines at their limits.

because it could be a horizontal structure of the kind that we analyze

Wyckoff method.

The identification of those three turning points is the most important

information that the market offers us at that point, and we should use this to

propose the hypothesis that we are about to see a sideways movement, where a

cause is being built.

But be careful.

This might not be the case, and it could simply be a short pause within the

downtrend before the price continues to fall.

We don't know for sure.

We are aware of both possibilities and we will simply let the market confirm

which of the two, among others, is the correct one.

The market develops and the price hits a new low.

At this point, what is clear is that it has not managed to reach the upper pivot

that would establish the high of the potential structure for the moment, and

instead it has reached a lower low, indicating that it could simply be a

continuation of the downtrend with decreasing highs and lows.

Something like this would be best.

Let's explain the reasoning.

The baseline that should be used in this case is the supply line, the downtrend

line. Why?

Simply because at this stage there are four contact points with the price and

this is more than enough confirmation that the market might be working with

new structure.

We take a copy of the baseline and anchor it in the lower pivot points.

In this case, I would consider two possibilities.

An intermediate line because it connects those two lows, and we already know

that the more contact points a trend line has, the stronger the argument when

identifying the dynamic it is following, and on the other hand, obviously, we

are going to always take into account the lowest limit.

These are our working hypotheses, but it must be the market that confirms them

or not.

It is also worth mentioning that not all structures are going to have a parallel

dynamic. Sometimes, the channel will converge or diverge.

Under this premise, we could also work under the hypothesis of connecting those

lows. However, I wouldn't have as much confidence in this option since it

doesn't usually occur.

With my experience and hours of looking at charts, I can tell you that most of

the time the price follows a parallel dynamic.

But since we know anything can happen in the market, and that this type of

behavior also happens, this possibly could be considered.

Going back to the example with the hypotheses that we considered most

we see that the market continued to develop and finally confirm the

supply line and not the lower one.

It is not the subject of this module, but in reality, from a trading point of

view, this structure has not offered us any opportunity to go short.

By the time we identified the bearish dynamic, the market broke it upwards and

it might now already be in a different context.

This is normal and will happen continuously, so it is not a reason to

There will be many other occasions where, if you do the job properly, you

identify very attractive opportunities.

Once the structure has been broken and the market has not re -entered it, we

understand that the fundamental conditions have changed and that it is

revisit our hypotheses about how it is most likely to move next, based on the

pivots shown on the chart.

Generally speaking, I might draw the following lines. In this case, I would

the multiple touch points that are respected in that line.

which establishes a demand line, and anchor it to the maximum pivot which,

coincidentally, we see connects the two most relevant highs.

And in addition, we can identify the two rising lows which we would use to

create a parallel line and anchor it in the highest pivot that is located

between the two, leaving a supply line with an upward slope.

Here, we see how the market, when interacting with the bearish supply

reacts by turning downwards, confirming the two new touches that this structure

seems to be functioning.

Again, we are not commenting on how we would trade at this point, but if there

is an opportunity to enter the market with a sale at the confluence zone.

Meanwhile, we can see that the bullish momentum has been lost, and suddenly the

context changes again. Strength is added and the market breaks suddenly upwards.

The point here is, do we continue to leave the bullish trend line that we had

initially drawn, or do we modify it to that new low?

You already know the answer.

We do both things and let the market confirm the outcome.

In this case, the bottom trend line seems less viable to me personally

of its distance from the price and because those touch points seem to be

visually forced.

This sounds more like what a classical technical analysis would recommend, and

that is not what we look for. But again, let the market decide.

At the same time, we can continue drawing new lines that will establish

hypotheses to try to identify the prevailing dynamic in the short.

medium, and long term.

Finishing with the example graph, which by the way is for gold, here we see

everything that has been happening and how its behavior has changed up to the

present moment.

We see how that first, more accelerated bearish channel was respected until it

lost momentum and continued under a context of bearish control, but already

denoting less strength.

This should be a significant sign in your analysis.

Slowing down and loss of momentum on one side warns us of a loss of commitment

from traders pushing in that direction.

Subsequently, a strong upward movement led to a change of character, and from

then on an upward imbalance began, seeking higher price levels that were

respected in this new, broader bullish channel within which more compressed

dynamics can also be seen corresponding to very short -term trends.

Until finally reaching the present moment where it is in neutral context,

sideways within a well -consolidated range in which it seems to have

spring.

We would have to see if this has any continuation in the coming weeks and

whether it offers up any trading opportunities before hitting the highs

structure.

It is a very complete structure that denotes the multiple phases and contexts

that an asset can go through and how we can make use of trend lines more

efficiently following the already mentioned premises of flexibility,

and consideration of all reasonable hypotheses.

We are going to continue now and deal with an important issue that is one of

major mistakes that beginners make when trading using lines.

Would you say it's best to enter or exit the market when the price touches a

certain line?

Unless you have some statistical study that proves it, using lines on their own

as a trading approach is not advisable. In other words, you shouldn't buy or

sell simply because the price has touched a particular line.

The lines simply represent the bigger picture, which is who is primarily in

control of the market.

If we see a bull market in which a bullish line or channel can be quite

obviously drawn, the objective reasoning is that buyers are in control.

If what we see channeled between two extremes is a clear downward movement,

means control is in the hands of the sellers.

And finally, a horizontal sideways movement with repeated pivoting at the

extremes tells us that there is a balance between both groups of

an aggregate level.

Visually identifying how the price follows certain lines, which are

let's not forget, simply puts us in a position to see that price, for whatever

reason, is following this dynamic and that based on the principles of

analysis, it is most likely that it will continue to behave in the same way in

the future.

But no more than that.

it should not be used alone as a tool to make buying or selling decisions.

But beyond this, remember what we have just seen.

Market conditions change and this is going to cause the structure to change

well. So it doesn't make any sense.

To assume that it is feasible to trade when the market reaches a certain trend

line is to mistakenly assume that the market is static and that it will

to move in that direction regardless, which we already know will not be the

case.

Therefore, The idea behind line drawing, whether it's to create horizontal

ranges, any type of channel, or simple trend lines, has only one objective.

One, identify the structural dynamics that the price is following.

Two, and based on this dynamic, provide us with potential trading zones, which

will be located at the extremes of said dynamics, a point that we will address

further on in the course.

Let's continue with our analysis based on this logic.

If we have just reasoned that an uptrend line or channel shows us a market

controlled by buyers, based on this it would be reasonable to buy while the

price continues to respect this dynamic, and only trade short after this dynamic

is broken, not before.

This is in line with what we studied previously.

If we have identified that the context is bullish, we will only look for

opportunities to buy until the context changes.

If we stick with this idea, This alone can significantly improve our trading

because it will prevent us from entering on the wrong side of the market or

against the path of least resistance.