Points and confirm trends

Because trendlines are so useful for trend confirmation, you can trade with confidence when you combine bullish trendlines with bullish candlestick patterns. That tandem can help you decide when to stick with a position or initiate a new one.

It's pretty obvious where a trendline should be drawn on a chart, but sometimes you may question its placement. Don't stress about it too much, because as a trend goes along and changes, you can always alter the trendline accordingly. I present a couple of examples of how you can combine a positive trendline and bullish-trending candlestick patterns in this section.

The trendline and bullish pattern on a chart

Figure 14-1 is a chart of Apple Inc. (AAPL), the computer company turned consumer electronics company that's scored big with iPods and iPhones.

trending | ■ candlestick patterns and

Figure 14-1:

a couple of bullish-

a positive trendline.

A chart of AAPL

with ij6

trending | ■ candlestick patterns and

Figure 14-1:

Both of the patterns on this chart are bullish neck line patterns, where a bullish day is followed by a gap opening. (You can read all about the bullish neck line pattern in Chapter 7.) That attracts some bears, and they push the closing price down near the point where the bulls raised the price the previous day. If you spot these patterns while reviewing charts, you can feel quite confident that an uptrend is indeed in place, and you'd be wise to anticipate higher prices and a buying opportunity.

The first of the two bullish neck line patterns occurs after the uptrend has been in place for only a few days. After recognizing that pattern, you should draw a trendline to better define the uptrend and buy to enter a long position. The trendline makes it easier to see the strength of the uptrend, and it provides a support level for several days to come.

In the midst of the established uptrend, another bullish neck line pattern appears. It's a bit above the trendline, and it shows up after the trend has been in place for quite awhile, so buying to get into a long position may not be the best move. It's like a stale green traffic light: You know it's going to turn soon. On the other hand, it's still a bullish-trending candlestick pattern, so if you saw it and were already in a long position, you can be confident that the uptrend carries on at least a little farther.

Another example of a trendline working with a bullish pattern

My second example of bullish candlestick patterns and trendlines working together is present in Figure 14-2. In that figure, you see the exchange-traded fund (ETF) based on the 100 biggest stocks trading on the NASDAQ exchange. The symbol for this ETF is QQQQ. Hopefully, I can provide some A's for all those Q's.

Figure 14-2:

A chart of QQQQ with a bullish trendline and a bullish thrusting line pattern.

On the chart in Figure 14-2 a bullish thrusting line pattern emerges as QQQQ is just a few days into an uptrend. This pattern is one of my favorites because the close is an attractive entry point due to a bit of retracing of the price into the range of the pattern's first day. Buying low while in an uptrend is the best of both worlds!

This bullish thrusting line pattern shows up several days into a bullish trend. If you see it on a chart, you may want to draw a trendline to further define the uptrend and give yourself a support level. If that level is violated, you know it's time to sell and exit the trade.

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