Learn / Trends, targets and context
Trend lines
The Bullish Support Line and the Bearish Resistance Line.
Trend lines on a P&F chart are drawn at a fixed 45-degree angle, rising or falling exactly one box per column. Unlike trend lines on other charts, there's no judgment involved in where they go. They tell you whether the stock is in a positive or negative trend.
Bullish Support Line
How to draw it: start in the column to the right of the lowest O column, one box below that column's lowest O. From there, move up one box for every column to the right.
While price stays above the Bullish Support Line, the stock is in a positive trend. The trend changes to negative when a column of O's falls through the line.
Bearish Resistance Line
How to draw it: start in the column to the right of the highest X column, one box above that column's highest X. From there, move down one box for every column to the right.
While price stays below the Bearish Resistance Line, the stock is in a negative trend. The trend changes to positive when a column of X's rises through the line.
Why 45 degrees?
A P&F chart has no time axis, so a line drawn through arbitrary tops or bottoms has no consistent meaning. The 45-degree line represents a steady rate of advance (or decline) per column. A stock that can't keep pace with it has lost momentum.
Trend lines and signals together
- Buy signals above the Bullish Support Line are the highest-quality buy signals. The trend and the signal agree.
- Sell signals below the Bearish Resistance Line are the highest-quality sell signals.
- A buy signal while the stock is still below its Bearish Resistance Line is trading against the trend and carries more risk.
- When a trend line is broken, the old line no longer applies. A new line in the opposite direction is drawn from the new extreme.
For education only. Nothing here is investment advice or a recommendation to buy or sell any security.