Original Question: How do you draw the clothesline? After a downtrend, when the uptrend resumes, where is the starting point? I refer here to the NDX clothesline when you mentioned 12900 …I did not understand why this is a point of importance.
You start drawing the clothesline once you have two significant price peaks which you can connect.
Here is an example:
The clothesline is a trend line on a chart with a logarithmic price scaling. Therefore a straight line represents an exponential growth. This corresponds to the typical expansion behavior of businesses in their hyper-growth phase. Consecutive constant quarterly EPS or sales percentage increases also represent exponential growth.
Stocks and indices oftentimes follow such a trend line loosely. Typically the price peaks reach exactly this line. The timespan between those visits can be anything from weeks to month to years. I refer to these visits as laundry “pegs” because the appearance of the charts resembles drying laundry on a clothesline.
I often get out of long-term trades when the clothesline is hit. Or at least I scale out some. Stocks do actually rally past their clotheslines sometimes but more often than not this represents a final climax moves before a long term top.
Please read some more about the clothesline here:
or here in my first article: https://thweis.com/how-to-set-up-effective-stock-market-graphs/#Logarithmic-scaling
The NDX follows two such trend lines PERFECTLY and anyones how ignores the concept doesn’t understand the sound foundation explained above.
2 thoughts on “How do you draw the clothesline?”
Do you adjust the clothesline as the stock progresses? If so, how? What are the rules, please. Thank you
I would only do this if another price peak exceeds the second one. However I can’t remember doing this in real trading. The clothesline is normally set once you have to major peaks. Sometimes you can go to a lower timeframe such as the 1 hour chart to check if there is a level which fits better but those adjustments are small.