Hello guys, welcome to this welcome to the second video Where we are reading chapter 2 from it's about to happen Let's get started chapter 2 drawing lines so much of trading and technical analysis looks easy on the internet for example So you can you can find all sorts of trading systems showing how trades were initiated at point A and sold at point B for a 3,000 percent profit within only four months. A book on technical analysis might glorify buying breakouts or the breaking of a trend line. Trends do require breakouts in order to pursue, but unfortunately many do not. The penetration of a trend line to pursue guarantees little.
What preceded the trend line break and the way it occurred reveals more than we have the skeptics who fall back to the old saying. Lines are drawn to the broken. So what?
Price movement evolves and may be wrong. Drawing support and resistance lines might seem the subject of charting 101. Some say it's for beginners but you would be surprised by how many people cannot tailor the placement of their lines to highlight the behavior in a trading range. However, even even fewer have learned to recognize horizontal lines around which prices have evolved. Let's first look at a typical trading range and imagine we are examining figure 2.1.
Figure 2.1 level 3 communications from the viewpoint of the rightmost day, December 26, 2003. December 2003, we see a great deal of lateral movement. After the September 25 high, a resistance line is drawn across this high and the initial low on October 2 serves as the support line. what we have here is our resistance line with our support line the resistance from this to this then now what is saying is our resistance line is drawn across this high and the initial low on october 2 serves as the support line yep why did i choose these two points for resistance support levels you might ask the height and the low on october 15 and 24 15 october 20 15 and 24 24 could have worked equally well right this and this could have worked equally well maybe even better as the top occurred on 15 in real time right this in real in 15 in real time i might have framed the trading range with the october high low okay but looking in retrospect from right to left from right to left, the two bold lines tell a better story. But they dramatize the failures in October and November to move upward or lower. At two.
two of these points the sellers attempted to take control of the stock and Drive drive prices lower. Okay, what is saying is at these two points is First sellers sellers attempted to draw the price lower and at this point second October Sell the buyers attempted to take the market higher. Okay.
All right each time however the buyers check the decline and prices recovered okay buyer did check the decline right here and um and the buyers check the decline and prices did recovered for new high right and now what we have is this is This is important information. It tells us buyers remain dominant. The support line brings the struggle between the buyers and sellers into focus.
During the latter half of December, notice the lifting of supports as the buyers gradually overcame the selling pressure. We do see the lifting of support. here the november one this is the december one lifting off now this supports as the buyers gradually overcame this such as such a sustained rise in price with most of the closes near the daily high tells a more bullish story than white flare then white flame action indicates the stock is in strong okay So we do see the complete story by drawing support and resistance.
Now let's move to the next paragraph. The resistance line drawn across September 25th. September 25th here.
September 25th. high was penetrated on October 14th October 14th it did penetrate here right and I treated this resistance line where prices registered their highest close their highest close at this point the buyers were seemingly in control on the following day however the sellers turned back and advanced back the advance and drove prices back down in the trading range and then the next day sellers came in and they drove the prices down and closed below and it you know closes below that trading range this is our trading range our trading area between support and resistance for a rectangle without it so we see that it did process below right this this reversal action threatened upward from the august low august low right this one until prices refused to break down on october 24th this one 50 went down right and tested this this trading range testing this trading range right trading range okay right so this reversal action threatened the upward uptrend from the august low until prices right until prices refused to break down on october 24th here and november 17th we retested this this you know this trading range if we extend this trading range we did retested this trading see we just touched down here and then bounced back tested here and then bounced back okay so notice the october high october high here has not played any role during this trading range a line of resistance did from across the November 4th, November 4th yep high as it blocked the two rallies in December right as it blocked the two rallies in December in December it blocked two rallies here here and here right it marked the high of a trading range that began from the October 24th low So this one over 24th low we you know it marked the high of a trading range that began from the October 24th, so there is new trading range forming here. We can see here and then what we right it marked the high of a trading range that began from october 24th it's not uncommon to see trading ranges within larger ranges especially when they spend several months okay so basically saying that you know we see trading ranges within larger trading ranges right let's let's move to the graph see the trading range in lb lt and about 20 percent of the october peak price we have to consider it if it of intermediate size on hourly charts we find many small trading ranges that swing less than one percent from high to low this may this may last only a few days at most while the support or resistance lines may not as we read a story about failed opportunities as we saw in LVLT they do so the case of a downtrend the steady progression of lower lows and lower highs right as demonstrated on the Agnico Eagle Mines hourly figure 2.2 here this one the lines reveal how prices interact with previously drawn lines These lines reveals how prices interact with previously drawn lines. Trading range AA'dominates the chart.
It contains a smaller trading range, the larger trading range, which dominates the chart. It contains smaller ranges like B and C. so what we are doing is have this trading range we have this larger trading range right and then we have the smaller trading range okay now saying so contains a smaller range pc which fails which fails to support the market right so it basically this range failed to support the market and it went down right forming a new trading range okay but the breakdown to support line d leads to one last rally into the larger trading range right this one this rally larger trading range this rally ends with an upward spike on january 17th for despite on January 17 this one 22 right the week close on this price or reveal the presence of selling so the week close this one is the week close on this price but reveal the presence of selling support line D also Stirs as an axis line as prices repeatedly try to recover from below it So this support line D also serves as axis as price did try to you know Repeatedly try to recover from it.
Okay record from below it right below it the last of these occurred on the up move from Support lining right the last of the last of these occurred on this up move from support line E by drawing these lines the trader can anticipate price swings peak bottom around previous support or resistance lines. They become an important part of a traders arsenal especially when combined with trends, lines, trend lines, channels, price volume behavior. Okay we are leaving the background here from what we are observing in the market is basically by drawing these lines the trader can anticipate price swings Peak or bottom so, you know after drawing this support lines What we are observing is price tend to you know come to these areas Estate and you know recovers from it or go below it above it You know, basically the market can do follow this, you know these structures okay we have this trading range bigger trading range here then we have this trading range here okay so saying that after by drawing these lines the trader can anticipate price swings to peak bottom around previous support resistance right so we can basically you know after drawing this we can say that you know we from peak here we from bottom here we draw the support this range right and we the market can market will you know revisit this area of support and resistance as we can see here it visited this area after rally well first traded within the range then it went down and then it went up testing this resistance area and then it again formed this new support line at c and then it formed new resistance line on the peak at b so it goes on like this okay and we see that and we see trading ranges within trading ranges right so they become an important part of a trader's arsenal especially when combined with trend lines channels and price volume behavior okay now some of the most useful axis lines appear on daily charts on the march 2006 bond daily chart figure 2.3 resistance line a since line a run across the letter 2005 high 2005 okay so we are doing this uh we are drawing this line now provided support lining On the March 2006 born daily chart, resistance line A drawn across the late November 2005 high year provided support line in January 2006. provided this support line in january 2000 and resistance twice in february 2006 right and this resistance in this world there is resistance in 2006 february the two rallies in february were tests of the breakdown below line a the two rallies in february were this two rallies in february okay but test of the breakdown below line a okay so this was the test of a breakdown below line a this this box it's working as a resistance here right the axis line alone does not reveal strength or weakness nor does it signal to buy or sell it simply shows a level that has repeatedly served as support and as a support Prices may have revolved around it for several weeks or months many times the final rally in a top formation or the Final downswing in a bottom will occur along an exit line Okay, what makes this line most meaningful is the price volume behavior around it But one first must learn to see the lines with practice you will be able to see all of the linear relationships at a glance okay let's move to the next paragraph when we draw these horizontal lines we we repeatedly see the false moves on either side of a trailing of a trading range compared to the false breakout on october 15th in lvlt figure 2.1 where 2.1 october 15th here false false breakout here right one with the january spike in march bonds okay this This is the bond so January spike would be this one right and Yep, all of these behavior stands out with the eight of the lines What is the small trading range in LVLT during July August 2003? July August July July August.
Yep, this trading range and It like the cell of 1 November 17, like the cell of 1 November 17, right? It tested this area of this range, right? That's what it's saying.
Now, Like the cell of 1 mm 70 led to a bullish turnaround after a false breakdown, right? This one which turn around after a false breakdown this one and around after a false breakdown So what what we are seeing here is which led to a bullish turn around after fall break out Trading ranges are horizontal patterns. They are resolved in three ways.
A long drawn out period of lateral movement that tries out the most die hard longs by the formation of an apex in which the amplitude of the price swings narrows to a point of equilibrium or a false breakout or breakdown. In the chapters ahead we will explain much more of this behavior. Trend lines Depict the angle of advance or decline they are dynamic support and resistance lines as opposed to the static horizontal lines that all that frame trading ranges in a downtrend a Trend line is drawn across Successively long lower highs.
So in a downtrend a trend line is drawn across successively lower highs so basically, you know, we know the you know, the How you define a trend is if you like an uptrend is formed when we see higher highs and higher lows Our downtrend is formed when we see lower lows and lower highs. So it's basically saying, uh Is that concept? Okay So You see in a downtrend a trend line is drawn across successively lower highs It seems uncanny that a trend line can be drawn across highs for example in january and march which later provides this resistance in july and september the resistance points in july and september are known as touch points okay so you gotta do this july and september right um resistance line in july and september provides us you know touch touch points right these touch points for this for this to test the market did did it does it did touch this they are trading ranges okay the year so which letter provides resistance in july and september The resistance points in July and September known as touch points that is places within a trend where rallies Faulted means the rallies have been halted Stop there against the trend line right touch points, okay? Right touch points Touchpoints add validity.
Touchpoints add validity to a trend line. In an uptrend, a trend line is drawn across the rising supports. It is called the demand line as it marks the point where buying repeatedly emerges. Similarly, the downtrend line across high is called the supply line. As we will discuss, As will be discussed there are combined these are combined to create trend channels.
Let's begin with some samples of uptrend lines. Normally they are drawn from the low point of a decline okay. So generally these are you know drawn from a low point of a decline okay. So what we are doing here is we see this low point of a decline we draw line from it combining this low point of decline. to draw this line forget that this this happened right forget that this happened okay you can basically you know see this one right and then this is demand line okay is online we are buying a card we are buying a third of it so we have our trend line now so we begin with some let's we are beginning with some sample examples of uptrend lines normally it is drawn from the low point of a decline right we do not want to draw a trend line through price moment okay so it's basically saying we do don't want to do this right in the middle of price moment okay so there's that uh demand line.
Okay, we do not want to draw a trend line through price movement to reach the second anchor point. On the daily continuation chart of the 10-year Treasury note figure 2.4, we see the simplest uptrend line. The lows of November 4 and December 5 serve as the anchor points. This line provided support on three additional corrections although right this line provided support on three additional corrections like one two and three you see this right it's providing support there okay so although although price broke slightly below the line at point three They quickly recover to make a new high. You can immediately see the inherent risks in automatically going short slowly slowly on the penetration of an uptrend line.
As previously stated the behavior prior to the trend line break and the way it occurs tell the story. After you finish reading this book the bearish behavior prior to the January 25th breakdown will be apparent, right? So this is what is saying this one after reading this book will you know? The bearish behavior of the prior to the January 25th this year will be apparent Two months later the 10 year fell below 10 524 okay now trend lines are drawn from the perspective of the last day on the chart one looks across the chart like a surveyor taking out land for development okay a second delhi lv lt chart figure 2.5 shown through december 1 to 2005 looking backward we feed a minor trend line onto the rally from the October low okay. October low okay.
We do not use the precise low as the first anchor point this one okay. If we did the line would not fit the angle of advance. Instead we draw the line from the low of the fourth day point one.
If I step upward if I steep up uptrend line A is drawn from this low it will pass through price moment right this one from point a and this will you know pass through price moment so we we don't want to do that so we we seek net next point right the low at point two is a better second anchor for the line is free and clear of other prices and it later provides support at point three right what we do is we draw a line from a angle line from point a to point two you know going as far as we can right now so it later you know provides support at line at point three right one more factor at point two We do not know prices will continue upward connecting point one and two creates a creates a tentative line until So it creates a tentative line until the high at b high at B exceeded right okay okay a rally above B so connecting point one and two creates a tentative line until the high at B is exceeded okay A rally above B constitutes, so it's basically saying that you know this high at B is exceeded here at point from point 3 right. So connecting point 1 and 2 creates a tentative line until the high at B is exceeded right. Rally above B a rally above B constitutes an uptrend So rally above B will constitute as an uptrend.
Okay, this did see the panel right? Draw like this This will construct as a uptrend. Okay Uptrend now A rally above B a rally above B constitutes an Uptrend I'm not as I'm not so terribly rigid for the line can always be drawn later If one applied the same reasoning to the 10-year chart figure 2.4 the uptrend line would not be confirmed until the rally in late december late december this rally exceeded the november high this one okay because the december touch points at one and two pulls along the line right i would not hesitate to draw it not hesitate to try it. So if LVLT figure 2.5 had immediately rallied above 58.95 this one if LVLT figure 2.5 had immediately rallied about 58.95 after December 1 the trend lines would here would no longer depict the angle of advance yeah okay a new line drawn from point one would not capture the angle of advance so like if if this if this you know goes about this point right one suppose like this right then this one covered that you know this won't be a valid line or yep you know depict the angle of advance a new line drawn from point one a new line drawn from point one would not capture the angle of advance this also occurs after lengthy periods of lateral movement within a larger uptrend the monthly chart figure 2.6 if we are moving to next point The monthly chart figure 2.6 is chart here. Let's draw rectangle that would be this chart.
Okay, monthly chart figure 2.6 of the Dow from the March 2003 low provides a good example. Here we have an uptrend line. drawn across 2003 and 2004 lows okay so this low 2003 and this 2004 lows we have an uptrend line drawn here right this one you see the line not necessarily be you know perfect line let's organize so but the correction from the March 2005 high penetrates this line March 2005 correction penetrates this line right here and goes below in six months of lateral Moment follow right and then there's six months of this lateral moment follows Astro this letter and when the trend resumes we could redraw the trend line of the 2003 and October 2005 lows Okay, but it would be too shallow a better choice involves drawing a second parallel line and anchoring it off the 2005 low So it's basically this one right this maintains the original angle of advance but it did not do a good job of pinpointing the October 2007 high.
Right so what it's basically saying is now if we have one angle of advance right here we do have one angle of advance so the best thing would be to you know redraw it as same angle of advance touching this lower 2005 so that we capture the same angle of advance okay all right now reference to parallel lines brings us to the subject of trend channels in an up channel the demand line is drawn across lows and a parallel supply line is drawn across an intervening high Figure 2.7 describes the anchor points and the order in which they are connected right so this one Point one point drawn like this Channel line then in the same angle of advance we saw the chain channel as Connecting the high and with same angle of advances You can quickly see this pattern by drawing a line across the high of point B on the LV LT chart Figure 2.5. Let's go and see figure 2.5 then at B So we can we draw this line with same angle of advance here point A One and this P see this We we do see that, you know you do see that market testing this area of you know supply right area of this supply and you know eventually going down okay this ideal up channel will have several additional touch points it should capture most of the price work within its boundaries a rally above the top of an up channel often a better overbought indication that most mathematical tools than most mathematical tools yet really above really above the top of an up channel is often a better overbought indication than most mathematical tools like RSI if you know about RSI RSI doesn't work like all the time right it doesn't have that depiction you know so here Here we do see that you know after combining this we do see this market has been overbought at this point and And we say that we can say that you know market will advance downwards Right and it did happen so this this depicts the overbought condition rather than relying on RSI We see this you can apply this in any chart right and it works Better than most mathematical. Okay, so Yes So a more inter a more interesting set of channels appears on the daily chart of april 2006 live cattle 2008 Figure 2.8. Yes. So this is figure 2.8.
Let me open it up we're looking at this here now this chart cattle chart now um okay so here we have low points at one and two here we have low points at one and two in the early stages of the advance right in the earlier stages of advance we have one point one and point two right which is two points and we draw and line with these two anchor points okay and we draw and we look for drawing a parallel channel at the high of this okay so the parallel is not drawn across an intervening high instead it is drawn across the early october high at 90 cents right this october high at 90 cents okay so draw this line here parallel channel and if the line had been drawn across the intervening high in late september this september high right it would have you know involved in this price movement right okay the supply line would have passed through almost all of the price war we have to be free and creative with the placement of our lines At the same time, we cannot force the placement. you can readily see the trading range at the top of the chart okay see that you know there are trading ranges here it's testing this point you know touch points here a lot of touch points acting as a you know dynamic support and resistance line within this trading channel this within this you know uh trendline channels okay Can readily see the trading range at the top of the chart? Yes, we can see that it consists of a false breakout about the high And a wide open break that penetrated the bottom of the range, right?
We do see that, you know this false breakout, right? This false breakout occurring at many points in this line and and a wide open break that penetrated and this wide open break which penetrated the bottom of the range right this one okay these were some of the clues that prices were turning down yep fire prices were definitely turning down and i cannot omit the steep down channel to the april 2006 this channel low right, compared to 2006 low okay. You can see the three anchor points and the anemic rally in mid-march. Notice how prices made upward progresses above the minor supply line during this one lateral moment this one right.
this one in april prices plunge to the demand line this is demand line in april okay you see the three anchor points and the anemic rally in mid-march notice how prices made upward progress above the minor supply this one about this minor supply line during this small lateral moment right april prices plunged to the demand line and it was upward okay so price prices plunged up to this this demand line and you know it went upward was upward this is the largest rally within the down moon I hope you see the license taken within the anchor points used in this down channel perhaps in real time I would have begun differently but once the contact broke below 90 cents the best channel would have become apparent okay this one below this which indicates that best channel would have become apparent to us okay paragraph something else has to be mentioned regarding objections bobby once one of the most prominent and enthusiastic teachers of the wyckoff course used to prepare cassette tapes on which he discussed aspects of chart trading. He devised colorful metaphors for describing different kinds of market behavior. In one of his most famous tapes he shared with his listeners a learning tool devised by a former student was called the sell driver strategy and dealt with the behavior after breakdown below the demand line of an up channel. He compared the market's rise within the the channel to a diver picks cells of the ocean floor and returns to the surface which is supply line okay so it's basically saying the metaphor suppose this is the ocean floor right and this is the ocean top surface so by applying the metaphor suppose the shell is here we are picking shell shell fish here shells here and we are going to the surface the ocean right which is our supply line so this is this is our supply line and this is our demand line okay now in it back reference where he places them in a floating basket okay so where he places them in a floating basket and if floating basket did fell down so let's just you know extend the metaphor and think metaphorically with some you know intuition that if you have basket of cell in ocean floor it might go down and you know go down to a ocean floor again right and it might and when we pick it up the same ocean uh cells be you know put it on basket floating basket up there in ocean right so this kind of metaphoric patterns happening again and again in an in an you know upward channel or downward channel right depending on how you look at how you interpret the ocean right in this case we are talking of ocean in the upward channel movement okay now let's move to the next point here okay yeah at some point during this activity he falls below his usual depth his demand line okay so this one we are talking about this one this demand line it falls below this demand And develops a cramp he tries valiantly to reach the surface but falls short and Rolls over for the final time right? Okay.
This is what is driving so He tries valiantly to reach the surface he tries valiantly to reach the surface but falls short and rolls over for the final time. On the cattle chart, point one marks the final attempt to reach the top of the channel. From this tale, we learn to watch the character of the rally following the break of the demand line is this demand line this high line if prices recover if prices recover and surge to new highs the odds favor a resumption often of the uptrend right if price recover and surge to new high of this The odds favor a resumption of an uptrend but it didn't happen right if Instead of this it went like this it would If would have you know resumption of uptrend Okay, and we would have drawn a new channel new uptrend channel on the monthly chart of the commonly researched Bureau BRB index figures 2.9. They are on point again okay now see the non in image see the non-inflationary rise from the 2001 low see this 2001 low this is tip advance fits beautifully in the up channel originally drawn from points one two three okay notice the numerous touch points at later dates okay so what we do is we just we draw a channel with these points one two and three combining these three points one and then parallel to this angle of advance okay point three now after the low in January 2005 when energy prices began to rise exponentially the advance steepened and prices traded along the supply line okay this is our demand line this is our supply line so prices are sped up traded around supply line a second parallel line is drawn from the high Point four.
Oh In parallel and and it stops the next two up move it stops the next two up moves here as illustrated on the monthly dot chart figure 2.6 A second parallel line broadens a channel and provides a useful guide for weaving price movement. In the case of CRB's index, the lines do not indicate the uptrend has ended. It is steepened and continued for several more years. yep indeed it was it indeed it was an uptrend okay one more type of line deserves attention it is the reverse trend line and reverse trend channel the basic look is sketched in figure 2.10 so we are moving on figure 2.10 let's see we are looking here okay 2.10 all right so they are normally drawn with dashed line reverse trend line dashed line set them apart from normal trend lines and channels right some uptrends will not fit in the normal channels we have previously discussed okay because of their steepness they require drawing a reverse trend line across rising highs points one and two right to make a reverse up channel a parallel line is drawn across an intervening low.
In the diagram 2.10 price does not interact with the lower line of the up channel. However in the future it could provide support. Many times a normal uptrend line will combine nicely with a reverse trend line to form converging lines.
Some technicians refer to this as a rising wedge. in the instance of an uptrend the converging lines often indicate a rally is thrilling or losing momentum when prices are falling within a pattern of converging lines it usually signifies the decline in nearing low so if the prices are falling within the pattern of converging lines okay so basically saying this okay we have this line and then we have this line and they are converging like it's this this this this this right then it usually signifies the decline in nearly nearing a low okay meaning we might see a breakout after this move okay so what we have here is What's happening? okay in figure 2.11 figure so this is our reverse trend channel Okay, so right, okay, so This is our reverse up channel, reverse down channel, converging lines. This is the converging line.
So what it basically means is in order to draw reverse up channel we need three points, two highs, one low, ten. For drawing reverse down channel we need two lows, one high and for drawing converging lines we need two highs and two lows okay figure 2.11 let's draw our angle here okay figure 2.11 reverse channel examples presents an unnamed chart with the three types of reverse trend lines channels mentioned above okay reverse trend lines channels mentioned about here right it's basically indicating these three lines right so we have this first for channel okay first let's talk about downward channel for downward channel to draw hit three points right you want to draw three channels like and you know this one one row line okay let's see what mentioned the decline on the left side of the chart fits into a reverse down channel it is drawn by connecting the two rows and then the parallel is attached to the intervening high these two lows as the then this intervening high okay the reverse of channel pc dash is much steeper and price moves above line c okay notice the sell-off from this high from support on parallel line c dash okay so if we draw then your sub channel here from here to there right connecting this high to this high because we need two high and one low we got one low and this is too high okay which is much steeper and price moves above the line c right this price moves above this line C right notice the sell-off from this high found support on parallel line C dash sell-off from this line found a support on this parallel line C dash a move above or below a reverse trend line often will mark the end of a swing right this is very important which is saying a move above or below a reverse trend line Often will mark the end of spring Okay, all right with this the move is happening above here move about this trend line Will mark the end of the swing swing high and it the sell sell off is happening here And it's finding the support here. Well Venice reaching here move from this Support line is marking the end of swing low and it's going up right? So I know an ingenious trader who has developed software showing how many stocks per day have reached Or exceeded reverse trend lines in an uptrend a large increase in the number of these often indicates the market is vulnerable to a downturn.
Line B, B prime do not form a reverse channel right line B and B prime this B line B and this line B prime do not form a reverse channel. Line B is a reverse trend line chart line that Line B is a reverse trend line that when combined with normal trend line B prime forms the converging or wedge pattern okay so i have never considered chart patterns of any significance except for this one as it is most associated with trending action i cannot stress enough how often a move above or below a reverse trend line channel will lead to a trend reversal okay so cannot stress enough how often a move above below a reverse trend line or channel will lead to a trend reversal. The standard and poor's S&P daily continuation chart 2000 figure 2.12 shows the price movement after after the August 2011 low.
The volatile trading range shows the price moment after the August 2011 low. The volatile trading range AB was resolved by a thrust to new lows and an upward reversal. Notice this reversal occurred after the break below the reverse trend line within the declining range.
so we're seeing this one we have this channel here over here this channel right and then we have this reverse channel first wedge one this then this this right and market you know this went down and tested this support line a channel a channel a b on support line a you know the reversal happened here okay so what is this reversal occurred after the break below the reverse trend line right below this reverse trend line within the declining wedge circles are drawn around the overshoot this is the overshoot at the october 4th low and the october 27 high okay so we have again this line but fourth row 27 this one the letter was about the reverse trend channel and resulted in this one channel now the letter was about the reverse trend channel and resulted in 142 point sell-off this one line b served as both resistance and support during the months shown here this line was the launch pad for a large up move from the december low okay this one line b served as resistance here here right and then as expected as support here here right here here and here we have this valley okay the live cattle quarterly chart now we are moving to next chart the live cattle quarterly chart figure 2.13 shows a reverse trend channel spanning many years looking backward from the 2011 high 2011 high one can detect the reverse trend channel the reverse trend line a drawn across 1993 to 2003 high right now the vertical price rise now from this that concept we draw this channel finding two high and one low for upward channel the vertical price rise in 2011 2011 boost prices above this line the parallel A prime so this reverse trend line is drawn across the 1996 low here in this situation the line passes through some of the price moment but it was a parallel rather than a starting line okay you see how frequently the market respected the parallel line right see this one respected the parallel line very frequently okay yet it could not have been drawn until after the 2003 high okay normal up channel is drawn across the 2002 and 2003 lows 2009 lows thousand this one right this one 2003 and 2009 channel and lows a normal up channel is drawn across the 2002 to 2009 lows p with a parallel across the 2003 high d prime line this channel price rally to the very top of this channel where we have a confluence of lines okay together they underscore the magnitude of the potential extremity right the stock market raised a major high in october 2007 and most issues declined accordingly one exception was us steel figure 2.14 which consolidated throughout 2007 it erupted in april 2008 and gained almost 70 per share in the next two months this one 2007 was basically consolidated right right then it erupted on April 2008 in $70 per share and so price this year and then erupted from there and set on 70 okay for sure okay the next two months all right so up move exceeded the confines of any normal up channel after the stock rallied about the reverse trend line here in june 2008 2008 the bullish trend finally came to an end and prices collapsed as you can see exceeding up down reverse trend lines must put one on alert for a trend reversal okay no other trend line break has such predictive value now some price 10 some price trends defy channels here advance or decline is too steep to fit into a normal or broad end channel the uptrend on the weekly july 2006 sugar chart we got 2.15 between may 2005 between may 2005 February 2006 suppressed trends we fight channels their advance or decline is to it into a normal or broaden and update on the weekly July 2006 the chart this one between May 2005 and February 2006 chi phi is the problem take a look at the five points table on the weekly chart only lines i can conceive begin with points three and five right a parallel line across point four fails okay fails to hold as prices soar beyond its boundary one draws a second parallel line across point two the broadened channel does contain most of the price movement until the final high Okay, this may not be a totally legal way to draw a channel because the high of the second parallel occurred prior points three five Okay, because this high occurred prior to point three and five so it's not uh, you know a legal way to draw or you know Uh, basically a right way to draw a channel, but it works drawing support Resistance lines trend lines and channels normal rewards of garden Demands open-mindedness one must always consider other possibilities enough mechanics now Enough mechanics now. We are ready for the story of the lines, right? So guys, this is the end of chapter 2 we studied drawing channels drawing reverse channels drawing parallel channels drawing support and resistance lines right drawing basically identifying trading ranges so that's the wrap of chapter two and tomorrow we're gonna be reading understanding chapter three the story of the lines for now thank you i'll see you