EdgeWare FastBreak Standard Version 6.5 - Manual (Page 97)

97
“force” the line to other expectations. A mathematical algorithm is not subject to such
expectations, but at the same time cannot “see” other potential complications and com-
plexities.
NOTE: The algorithm to determine trendlines is very computer time intensive. If you
are using a very large trading family you will notice a long delay to evaluate the strat-
egy.
Although the basic idea of trendlines is rather simple, implementation and especially
automated implementation, can be come rather complex. Analysts don’t agree on meth-
ods to draw trendlines (Note: Analysts don’t even agree on how to spell trendline, i.e.,
“trendline” or “trend line.”) For upward trendlines, FastBreak uses a method that draws a
trendline between significant low price points and at no time is the price of the stock or
fund allowed to penetrate the trendline. In the chart below the trendline is drawn between
the 1
st
and 2
nd
significant price low points. For the trendline to be valid the equity curve
cannot penetrate below the trendline anywhere between those two points.
For downward sloping trendlines two significant high price points are used to draw the
trendline.
It has been a standing joke that trendlines are very easy to draw after the fact; however, in
real time it can be quite difficult to determine which point to choose on the equity curve
to anchor the trendline. For example, using the above chart it may have seemed reason-
able to draw the trendline shown below at an earlier decision point. However, it is clear
that this trendline would have forced you out of a very profitable upward trend too early.
This is to say, that the rules of trendline technical analysis forces a sell when the equity
curve violates the trendline until a new trendline can be drawn.