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

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

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that the market will respect them.

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But you need to be clear about
something.

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

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thin they are, or their color.

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

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

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

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

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to give me an edge.

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

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

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

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

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adaptable way.

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

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

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

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

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

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

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connecting two rising highs.

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But this is not important right now.

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

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

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Most of the time, it is tremendously
subjective.

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

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

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

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Let's see what happens next.

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

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

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

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

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

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

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

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really providing us with interesting
zones for trading opportunities.

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

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

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

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

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That doesn't seem quite right to me.

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

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

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by the connection between the two lowest
lows.

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

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

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lower lows.

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

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

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

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

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possible to market changes.

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

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

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approach in a traditional way.

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

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

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definitely not something we would want
to use.

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

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of tracing the dynamics with lines.

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

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

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visually respecting the price turning
points.

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

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

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

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

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

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

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and demand that tells us the current
market condition.

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When observing something of this
magnitude, We must understand the

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

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

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price had been following has now ceased
to be valid.

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

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the current dynamic at all.

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

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Always try to follow the premise that
identifying market structures and

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should be something very visual.

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and not at all forced.

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

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

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

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

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and place a copy above the upper pivot
point.

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And this would be the result.

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

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

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develops. This is the key.

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No drawn lines should be left there
permanently.

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

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our approach accordingly.

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

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

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

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

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

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area in which to look for a potential
long position.

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It also left a very evident false
breakout.

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These types of opportunities are high
quality since they combine the

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

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according to the latest market dynamics.

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

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

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of the slope.

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

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

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line above to create a bullish channel.

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

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

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

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

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

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quickly as possible.

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

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bullish movement?

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

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

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while simultaneously visually respecting
the turning points.

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The chart used to develop this concept
continues to develop.

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

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upward excess generating an overbought
condition with a subsequent distribution

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

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well -channeled bearish dynamic.

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

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

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focused only in that direction.

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How long will we look to trade in that
direction?

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

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

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to analyzing trend lines in the most
efficient way possible.

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

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

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

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

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

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it reaches it.

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

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

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have correctly identified the dynamic
established by the current conditions.

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

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time.

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

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

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analysis.

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

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

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the market changes from a bearish to a
sideways state.

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

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

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Wyckoff method.

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The identification of those three
turning points is the most important

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

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

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cause is being built.

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But be careful.

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

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downtrend before the price continues to
fall.

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We don't know for sure.

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

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

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The market develops and the price hits a
new low.

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

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

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

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continuation of the downtrend with
decreasing highs and lows.

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Something like this would be best.

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Let's explain the reasoning.

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

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line. Why?

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

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

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new structure.

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

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In this case, I would consider two
possibilities.

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

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

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

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are going to always take into account
the lowest limit.

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

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or not.

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

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dynamic. Sometimes, the channel will
converge or diverge.

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

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

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doesn't usually occur.

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

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the time the price follows a parallel
dynamic.

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

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behavior also happens, this possibly
could be considered.

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

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

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supply line and not the lower one.

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

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

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

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it might now already be in a different
context.

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

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

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identify very attractive opportunities.

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

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understand that the fundamental
conditions have changed and that it is

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

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pivots shown on the chart.

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

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the multiple touch points that are
respected in that line.

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

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coincidentally, we see connects the two
most relevant highs.

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

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

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

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

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

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seems to be functioning.

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

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

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

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

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

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

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You already know the answer.

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

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

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

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visually forced.

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

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

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

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

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medium, and long term.

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

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

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present moment.

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

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

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denoting less strength.

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This should be a significant sign in
your analysis.

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

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from traders pushing in that direction.

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

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

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

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

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

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

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spring.

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

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whether it offers up any trading
opportunities before hitting the highs

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structure.

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

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

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efficiently following the already
mentioned premises of flexibility,

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and consideration of all reasonable
hypotheses.

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

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major mistakes that beginners make when
trading using lines.

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

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certain line?

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

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

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sell simply because the price has
touched a particular line.

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

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control of the market.

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

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

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

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means control is in the hands of the
sellers.

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

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

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an aggregate level.

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Visually identifying how the price
follows certain lines, which are

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

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

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

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the future.

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But no more than that.

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

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But beyond this, remember what we have
just seen.

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

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well. So it doesn't make any sense.

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

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

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

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case.

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

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

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

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

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

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further on in the course.

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

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

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

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

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is broken, not before.

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This is in line with what we studied
previously.

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

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opportunities to buy until the context
changes.

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

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

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against the path of least resistance.