All language subtitles for 7. Drawing trend lines 2.0

Drawing Trend Lines 2 .0 In line with
the previous point, as we have

it is very important that we draw the
lines that will identify the price

in the most correct way possible.

Many traders, especially the less
experienced ones, may sometimes find it

difficult to do this successfully.

One tool that can help us is the linear
regression channel.

Linear regression is a statistical
concept that tries to predict a variable

depending on the historical value of
another.

The linear regression channel is made up
of three lines. The central one, which

is the trend regression line created
according to the least squares method,

two standard deviations that establish
the upper and lower lines.

The TradingView platform offers this
tool in the second menu of the panel

located on the left, where the trend
lines are located, and just at the

of this option drop -down. The way to
properly plot this type of regression

channel is to identify the high and low
of a full movement or swing, and anchor

the trend line that is generated by
clicking on the tool between these

As we can see on the screen, two trend
lines will automatically be generated,

upper one corresponding to the positive
deviation of the regression line and a

lower one corresponding to the negative
deviation.

If we double -click on these lines, we
can change their configuration.

The key to these regression channels is
that they must include most of the price

action, just like the line drawing we
explained earlier.

and to ensure this, we can change the
configuration of the parameters.

I personally recommend using a setting
between 1 .5 and 1 .75 plus or minus.

In the examples we'll be looking at, the
deviation is set to 1 .5 and negative 1

.5 as it seems to me to adequately cover
about 95 % of the price action.

Regarding the source, this refers to the
prices that you will use.

My recommendation here is to leave it at
closing prices.

to avoid the variability that other
types of prices can produce due to their

constant change in real time in the
style tab of the tool configuration

you can change the color this also
allows you to extend the future lines to

infinity so that you can check in real
time if the market continues to respect

the dynamic keep in mind that regarding
the drawing of lines beyond using them

to provide us with potential trading
zones for consideration which we will

about later Another main use is to
determine the end of the directional

the short term as an input to begin to
predict a possible market reversal and a

potential reverse trading opportunity.

In other words, we already know that we
always want to trade in the direction of

the prevailing market dynamic.

In this case, if the market is falling,
we are only going to look for short

trades, and in the event we are looking
for a possible purchase operation

because we expect a bullish turn, we
should at least wait for the bearish

dynamic that the market is following to
be broken.

Anything other than that would
exponentially increase the risk of

we would be entering against the
direction in which the market is

unbalanced. This is the minimum key sign
that we should expect to see.

This style tab also allows us to access
other information, such as the Pearson

Correlation Coefficient.

which shows us in numerical and
quantitative terms the degree of

that exists between the two variables,
which we know are the start and end

prices to which we have anchored the
channel in this case.

This coefficient varies between negative
1 and 1 and reflects the degree of

association between two variables, where
a value of 1 indicates a perfectly

positive correlation, a value of
negative 1 indicates a perfectly

correlation, and a value of 0 indicates
no correlation.

For this example, if we look closely, we
can see that the degree of correlation

is 0 .88, very close to 1, which
suggests that the channel drawn on the

very closely represents reality.

The way to create and manage the drawing
of these regression channels is simple.

First of all, we are going to talk about
how to define the initial outline of

the channel.

Later, we will address the most logical
way to modify said outline.

For the initial creation of the linear
regression channel, we are going to

use the concept of pivot generation,
through which we objectively determine

creation of a pivot when the market
develops two candlesticks above and

the last limit.

As soon as we confirm the appearance of
a pivot, we can begin to draw a

regression channel on it and in the
direction of the subsequent movement.

Let's imagine that we are currently on
the chart and that we have launched a

regression channel from the high to the
low.

At what point are we going to modify the
endpoint of the channel?

Well, right at the point when the price
hits a low that is lower than the

current one.

At that precise moment, when the price
develops a new low, we must change the

endpoint of the bearish regression
channel.

This is the rule that we should always
use for modifying the length of the

channel. We should maintain the same
start and end point until the price hits

new high or low.

Could we draw a channel between those
two points?

Absolutely. At this moment, we have the
maximum pivot point confirmed.

So if you are looking for a potential
entry to sell right in that zone, an

essential filter would be seeing the
break in that bullish dynamic.

To do this, what I recommend here is
going down to a shorter time frame to

better visualize the dynamic.

This is because if we establish the
start and end in the same time frame,

channel will be too narrow and we won't
be able to draw any clear conclusions.

There, we see what the bullish
regression channel created from the low

high on a lower time frame would look
like.

As we can see, it enables us to very
precisely identify the edges of the

channel, so we can definitely use this
to our advantage.

Often, this movement, which we would
treat in principle as simply a bullish

correction, will not actually be a
correction, but will instead continue to

advance increasingly in line with the
bullish dynamic.

Establishing this filter before reverse
trading is tremendously useful for our

decision making.

Let's continue with the example.

Once the price has developed that lowest
pivot point, we can start to use this

to anchor a new bullish regression
channel to it.

As the price develops, it hits a maximum
pivot point, so we use this to anchor

the end of the channel.

But up to what point?

Until the market hits a new high, as in
the example.

After that point, we will wait once more
for the price to hit a new maximum

pivot point on which to anchor the end
of the bullish channel.

The market continues to move, zigzagging
back and forth constantly.

If we continue with this type of line
drawing using the linear regression

we should see something like this.

Let's now look at another important
factor that can emerge in the market.

Imagine we are at this moment, on the
last candlestick on the chart.

At this point, we are seeing a major
bullish movement from the last major low

the high shown in the example.

But as we can see, the price broke out
at the bottom and then reversed again.

generating a new, well -channeled upward
movement.

Which of the two regression channels
should we consider to be more accurate

therefore use?

Well, as we discussed with respect to
the traditional drawing of lines, it

should be the market that tells us which
of them best defines the current market

context. Since both of them are
currently in force, it will have to be

by the market.

The key here is to be clear at what
point we need to mark a new end of the

bullish channel.

And as we know, this will be when the
breakout of the last high occurs.

If the price rises above that high, we
will wait for the generation of a new

maximum pivot point and we will mark the
end of the bullish regression channel

there. And this is what would eventually
happen.

Once the price breaks that last high, we
can discard the previous short -term

dynamic and look at the entire movement
as one at the aggregate level.

As we see, by including all of the
latest price action, the slope of the

flattens out to adjust for all the
fluctuations that took place from the

We already know that trends can
continually change phases and go from

more or less steep slope to another
context with a different representation.

What this method means is that we are
relying on statistical approaches that

use objectively, and this adds greater
validity to our analysis.

In case you're curious, The price in the
example is that of the SP500 futures

market, and this is the current context
where it appears to have broken the

bearish structural dynamic that it had
been following in recent months.

Does this mean that it is definitely
going to return to a bullish path?

Of course not.

The fact that the bearish structure has
broken upwards does not mean that in the

medium or long term, the market will hit
new all -time highs.

This fact simply informs us that in the
short term, control seems to be on the

buyer's side. And this sign should be
the minimum input that we are going to

require from the market before assessing
a potential opportunity.

Even if that happens, we cannot rule out
the possibility that the price may

continue to fall again after a while.

We already know that anything is
possible in the market.

We are now going to compare this way of
drawing lines to identify the market

dynamic versus the traditional way as
prescribed by the technical analysis

approach.

For the purpose of what we are trying to
achieve by drawing lines the

traditional way, which looks at the
precise point of contact in millimetric

detail, does not offer us the same
degree of confidence.

As previously mentioned, one of our main
goals when drawing trend lines is to

identify the current market trend and to
know as soon as possible when there has

been a change in said dynamic, so we can
start looking for opportunities in the

opposite direction if we so decide.

Take a look at the difference between
the different ways in which the lines

been drawn.

As every manual tells us, we have used
the two lows to initiate the uptrend and

two highs to anchor the downtrend.

Were we to rely on these to identify the
end of the trend, we would be too late.

On the other hand, if we use linear
regression, we can quickly adapt to the

slightest change in the market.

Since what we are interested in
identifying is the dynamic that the

following, The use of regression
channels is undoubtedly much more

above all and fundamentally because it
is totally objective.