We all agree that there is a certain degree of subjectivity in drawing trendlines, so saying "most people are doing it wrong" might sound a bit strong. However, listen to this argument: if our goal is for the trendline to represent the point of maximum support or resistance —so that price reacts as strongly as possible to our calculations— then there is only one way to do it right. If the goal is something else, then everyone can do as they please. In this tutorial, I will focus on arguing why, mathematically, there is only one trendline that meets this condition for every series of major swings in the markets.
Let’s take a complete swing composed of a segment going from Point A to Point B (in this case, bearish). Suppose we want to draw, for this entire trend, the trendline that reflects the point of maximum tension during a retracement toward it—that is, the maximum support or resistance this trend can generate in an opposing retracement. Mathematically and geometrically, only one line generates that effect, and it must meet a specific set of conditions:
It must always start from the highest high.
It must connect to the lowest possible minor high.
It must be extended and not allow any price to cross through it in the middle.
It must have been effectively connected before the lowest low, always.
For any leg, these three requirements will deterministically lead to only one line fulfilling them all. For any downtrend, it will always result in the least low negative angle. In other words, any other line with a "lower" (steeper) negative angle will be crossed by bullish prices more easily, precisely because it is directed so far downward that it will be touched as soon as any opposing bullish movement begins. The less negative the angle is —up to the extreme point where the angle is 0 for the highest high— the more distance the price must travel upward to cross it. Therefore, mathematically and geometrically, it generates the maximum possible tension between buyers and sellers for those two opposing movements.
"For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that it does not pass through prices in between the two high points. Extend the line." — Alan Andrews.
The opposite applies to bullish trendlines.
For every trend, there will therefore be only one "primary trendline," which will be the most extreme trendline possible with which price can interact. Any other trendline for the same leg, swing, or trend we are observing will, by definition, always represent a lesser degree of "support" and "resistance"; thus, it is less significant whether the price reaches, violates, or respects it.
Violations of these lines are clear signals of trend changes, while they can also be respected and the trend can continue, as is the case with the ES.
To fully understand its advantage, we must not stick to the naive view that the line must always be respected. In fact, the probability of that happening is no more than 50%. In reality, the other side of the coin is that it is completely violated —in which case, what we want to observe (and what will indicate that it was drawn correctly) is that the violation occurred with an acceleration in the direction the price was already moving, effectively causing an "imbalance."
“There is a high probability that: prices will either reverse on meeting the ML or gap through it.” — Alan Andrews.
This statement by Andrews was made specifically for Median Lines or the Andrews Pitchfork, but it applies perfectly to these same trendlines.
If you are a trader who watches for market imbalances, you don't really have many ways to predict them. Two that I know of are: when price exceeds a high or a low and creates an imbalance at that same level (signaling continuation instead of reversal), or when the same happens at a trendline.
Use them, practice, and you will see. This "rule-based" method for calculation and drawing is more powerful because it always generates the maximum degree of tension possible, while also being very useful for separating important market sections when they are respected or completely violated.
They generate a greater understanding of structure. It is generally observed that for every interval —whether long, medium, or short term— there is always a primary trendline whose direction is worth understanding to trade in the same direction, or at least to know if it is worth "attacking." A distinctive characteristic of these lines is that, by not allowing any price to cross through them, the further the price moves away from them, the more we know that movement is loaded with liquidity and effective positioning that fuels any counter-movement. If it remains intact for a long time, it is likely that price will revolve back toward it—that is, toward the traders with large accumulated profits and intact stops who will find themselves needing to defend their area or be defeated.
This is highly valuable technical information. My suggestion is to draw it according to Alan Andrews' "mathematical" rule and observe its effects on the markets. I would argue these are not "self-fulfilling prophecy" effects —as if a bunch of traders simply had that exact line waiting there— but rather a reflection of real market activity and tension.
Up trendline example
Imbalance example
Best regards and good trading.
Let’s take a complete swing composed of a segment going from Point A to Point B (in this case, bearish). Suppose we want to draw, for this entire trend, the trendline that reflects the point of maximum tension during a retracement toward it—that is, the maximum support or resistance this trend can generate in an opposing retracement. Mathematically and geometrically, only one line generates that effect, and it must meet a specific set of conditions:
It must always start from the highest high.
It must connect to the lowest possible minor high.
It must be extended and not allow any price to cross through it in the middle.
It must have been effectively connected before the lowest low, always.
For any leg, these three requirements will deterministically lead to only one line fulfilling them all. For any downtrend, it will always result in the least low negative angle. In other words, any other line with a "lower" (steeper) negative angle will be crossed by bullish prices more easily, precisely because it is directed so far downward that it will be touched as soon as any opposing bullish movement begins. The less negative the angle is —up to the extreme point where the angle is 0 for the highest high— the more distance the price must travel upward to cross it. Therefore, mathematically and geometrically, it generates the maximum possible tension between buyers and sellers for those two opposing movements.
"For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that it does not pass through prices in between the two high points. Extend the line." — Alan Andrews.
The opposite applies to bullish trendlines.
For every trend, there will therefore be only one "primary trendline," which will be the most extreme trendline possible with which price can interact. Any other trendline for the same leg, swing, or trend we are observing will, by definition, always represent a lesser degree of "support" and "resistance"; thus, it is less significant whether the price reaches, violates, or respects it.
Violations of these lines are clear signals of trend changes, while they can also be respected and the trend can continue, as is the case with the ES.
To fully understand its advantage, we must not stick to the naive view that the line must always be respected. In fact, the probability of that happening is no more than 50%. In reality, the other side of the coin is that it is completely violated —in which case, what we want to observe (and what will indicate that it was drawn correctly) is that the violation occurred with an acceleration in the direction the price was already moving, effectively causing an "imbalance."
“There is a high probability that: prices will either reverse on meeting the ML or gap through it.” — Alan Andrews.
This statement by Andrews was made specifically for Median Lines or the Andrews Pitchfork, but it applies perfectly to these same trendlines.
If you are a trader who watches for market imbalances, you don't really have many ways to predict them. Two that I know of are: when price exceeds a high or a low and creates an imbalance at that same level (signaling continuation instead of reversal), or when the same happens at a trendline.
Use them, practice, and you will see. This "rule-based" method for calculation and drawing is more powerful because it always generates the maximum degree of tension possible, while also being very useful for separating important market sections when they are respected or completely violated.
They generate a greater understanding of structure. It is generally observed that for every interval —whether long, medium, or short term— there is always a primary trendline whose direction is worth understanding to trade in the same direction, or at least to know if it is worth "attacking." A distinctive characteristic of these lines is that, by not allowing any price to cross through them, the further the price moves away from them, the more we know that movement is loaded with liquidity and effective positioning that fuels any counter-movement. If it remains intact for a long time, it is likely that price will revolve back toward it—that is, toward the traders with large accumulated profits and intact stops who will find themselves needing to defend their area or be defeated.
This is highly valuable technical information. My suggestion is to draw it according to Alan Andrews' "mathematical" rule and observe its effects on the markets. I would argue these are not "self-fulfilling prophecy" effects —as if a bunch of traders simply had that exact line waiting there— but rather a reflection of real market activity and tension.
Up trendline example
Imbalance example
Best regards and good trading.
Note
As a side note, if I were to draw a different trendline on the ES chart connecting the highest high to the lower high created by the retracement, it would also be a valid line, but it is a different construction. I don't want to say that only one is valid, but because this second line is formed after the lowest low rather than before it, it captures three differently positioned pivots: the highest high, the lowest low, and finally the lower high of the retracement. This effectively creates the A-C vector of a Modified Schiff Median Line. The 'simple trendline' is different because it does not require three already-formed pivots; having only two, with the third being a potential pivot, it can be drawn perfectly to help predict that third point, as seen in the ES chart example. 
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.