This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I’m lifting a section of Dorsey’s website to explain how I use the 45 degree trend line.
Bullish Support Line.
Serves as a guide for the up trend of a stock. Has a habit of acting like a brick wall. Stocks will often come right down to the bullish support line and then bounce off.
Once a stock has formed a base of accumulation and gives the first buy signal, we go to the lowest column of O’s in the chart pattern and begin drawing a trend line. Starting with the box directly under that column of O’s and diagonally connecting each box upward in a 45 degree angle.
The opposite is true for a bearish resistance line.
As you can tell from looking at numerous charts, the 45 degree trend line works unless it doesn’t. If the security is indeed trending, then it just offers another area of support/resistance. There are other “creative” entries that I’m exploring, and will post them as I use them. However, this provides a low risk area to short into strength, or get long into weakness.
Richard pointed out in a comment earlier that the 45 degree trend line may very well be “the line in the sand.” That’s not a bad place to take a low risk entry in anticipation of a resumption in trend. The key is “resumption in trend.” Don’t short every bearish trend line, or go long at every bullish support line.