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21 While this method is quite simple, it is extremely consistent and very accurate. The slope of this trendline is a close approximation to the slope you would get by do ing a linear regression analysis on the price data over the same time period. Unlike other methods, it prevents you from drawing a trendline to suit your purposes-it prevents you from imposing your wish onto the trendline. It also provides the basis to graphically determine when a change of trend has occurred. Daily Bar Chart 7600 7400 - 7200 7000  Lowest Low Preceding Highest High without P&eing Through Prices Lowest Low MAY JUN TQ 20/20 © 1991 CQC Inc. Figure 7.1 December 1989 Live Cattle Futures -drawing the uptrend. For an uptrend, draw the trendline from the lowest low to the lowest low preceding the highest high, without passing through prices between the two p>oints. DAILY BAR CHART 7600 - 7400 - 7200 - 7000 - I  Passing T+irough Prices WRONG! MAY (UN JUL AUG SEP OCT TQ 20/20 © 1991 CQG Inc. Figure 7.2 December 1989 Live Cattle Futures - drawing the uptrend incorrectly. This trendline is wrong because, while it passes from the lowest low to the low preceding the highest high, it passes through prices between the two points. This mistake will result in a false indication of a possible change of trend.
2200 2000 1800 Highest High  Highest High Preceding Lowe&t Low Lowest Low MAY JUN TQ 20/20 © 1991 CQG Inc. Figure 7.3 December 1989 Bean Oil Futures - drawing the downtrend correctly. For a downtrend, draw the line from the highest high to the highest high preceding the lowest low without passing through prices between the two points. Daily Bar Chart 2400 2200 2000 - 1800 - Wrong Trendline  This Point is the Lowest High, But it Does Not Precede the Lowest Low MAY JUN TQ 20/20 © 1991 CQG Inc. Figure 7-4 December 1989 Oil Futures-drawing the downtrend incorrectly, this trendline is wrong because it is drawn to a point which does not precede the lowest low. Note that while the trendline in the previous figure indicates a possible change of trend, this line doesnt give nearly as strong an indication. This demonstrates the importance of being consistent in drawing trendlines.
Daily Bar Chart 24000 22000 20000 - 18000  (T)The Trendline is &rolccn TQ 20/20 © 1991 CQC Inc. Figure 7.5 The 1990 Value Line Cash Index-breaking the intermediate trend-line. The first indication of a change in trend is when prices break a properly drawn intermediate trendline. Condition 1 of the 1-2-3 change of trend criterion. IDENTIFYING A CHANGE OF TREND: ITS EASY AS 1-2-3 The ideal way to speculate is to buy at the bottom and sell at the top. Obviously, this is impossible to do with absolute consistency; the markets are too uncertain. But there is a way to determine technically when changes of trend have occurred so that you can catch 60 to 80% of mo st equities and commodity long-term price moves. There are three basic changes in price movements that, when they occur in conjunction, define a change of trend in any market: stocks, commodities, bondseverything. The changes are: 1. A trendline is broken. The prices cross the trendline drawn on the chart (Figure 7.5). 2. The trend stops making higher highs in an uptrend or lower lows in a downtrend. For example, in an uptrend after a minor sell-off, prices will rise again but fail to carry above the prec eding high point or barely break the high and then fail. The converse would happen in a downtrend. This is often described as a "test" of the high or low point. This condition usually, but not always, occurs when a trend is in the process of changing. When it doesnt occur, price movements are almost always driven by important
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