Some parallel trend lines that have very good forecasting value for Straits Times Index STI. We go through how to draw, spot, and verify with price action.
These parallel lines have high probability value for STI
- Monthly chart of Straits Times Index STI from 1988 – present.
- Lines based on highly prominent turning points which are multi-year highs/lows.
- With some testing, look for lines that are verified by price action.
Straits Times Index monthly chart 1988 – 2015
How to uncover points on this chart (top)
- Start with line A (blue) by connecting a trend line top to top between points 1 and 2.
- Based on line A, shift parallel line to point 3. Point 4 verifies observation.
- Draw line B (red) by connecting a trend line to prominent decade lows points 5 and 6.
- Based on B, shift parallel line among prominent tops.
- A line from point 7 shows confluence with points 1 and 2.
- An extended trend line (interchange between support and resistance) from 8 reveals price action at 3, 4, 9 and 10.
What these lines forecast for the index
- Extended trend line C (parallel to B) is confirmed by price action from points 11 to 17.
- C projects potential resistance to vicinity of STI 3200. STI 3200 is half way between most recent top and bottom and coincides with observations made here “Stage B likely to recover half of losses of A”.
- Extended trend line D is based on points 18 and 19.
- D projects STI support in vicinity of 2400.
- Line E is based on point 20.
- E projects STI support in vicinity of 2000 which is a round number (psychological).
Potential levels to watch based on projected lines
- There are many techniques to project. Use of lines is just one type among many.
- These are projected levels which means finally still need price action to confirm.
- Best levels are the ones that have confluence from others using many methods.
- Other lines/levels are possible. There is no single correct answer. Important to let price action verify.
- Here is a video showing best way to draw equidistant channel (parallel) in MT4.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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