Previously, we have learned the simple way how to make money in stocks by using trendline. Before move to our current hot topic (which is another way to utilize the trendline), first, let’s refresh our mind by summarizing what we have discussed in the previous article. As mentioned in previous article, we have learned how we can use the stock chart’s trendline to decide whether it is the best time to buy or to sell the stocks.
I call that strategy as the ” the penetrated trendline” strategy. In here, Our stock trading activity (either buy or sell the stocks) are fully dependent on whether the trendline is penetrated or not. In simple word, if penetrated down, it is the time to sell the stocks and if penetrated up, it is the time to buy the stocks – as simple as that. Yeah, Penetrated trendline strategy is a very simple strategy to make money in stocks. However, please do not underestimate it since it is very powerful for sure.
In other hands, even it is very powerful strategy, most of the stock traders may not have the patience to use it. It is because surely needs time to wait until the trendline is being penetrated – it may take several months before the trendline is being penetrated. This condition will be not a big deal as long as the stock market allows both of long and short activity – the traders can do “let the profit run” strategy while waiting the trendline is being penetrated.
Mostly of the stock market does not allow to short the stocks. It means the stock traders need to wait patiently until the trendline is being penetrated up which may take a very long time. Fortunately, there is another strategy to make money in stocks by using trendline without need to wait the penetrated trendline. With this another strategy, stock traders can still make money in stocks even-tough there is no penetration of trendline.
Either it is the uptrend (bullish), downtrend (bearish), or nontrend (sideways), we can still long (buy) the stocks and enjoy the significant profit. Yeah, It is true that we can still have profit even in downtrend (bearish) condition. This strategy is well-known as support and resistance strategy. In here, we use the trendline as support and resistance as tool in our stock trading venture. As the consequence, if compare with previous make money in stocks by using trendline strategy, we need to add one additional trendline in uptrend (bullish) and downtrend (bearish).
For this strategy, we need to add a top uptrend line (which will act as resistance) and a bottom downtrend line (which will act as support). With this two additional lines, now, we have the channel trends which are uptrend (bullish) channel, downtrend (bearish) channel, and nontrend (sideways) channel. In here, the channel’s upper limit will act as resistance and the channel’s lower limit will act as support.
After create the channel, the strategy becomes very easy which is the common resistance and support strategy – we buy the stocks when near or touch the support and then sell it when near or touch the resistance. With this strategy, it is obvious we can always long (buy) the stocks whatever the trend is. Beside that, our profit can significantly multiply since we do the more of buying and selling activities.
For more understanding about this stock trading strategy – the channelling (support and resistance) strategy – , let’s take a look in the several charts below:
Make Money In Stocks #1: Uptrend (bullish) Channel
As you can see, I have added an additional uptrend line in chart above. This additional line connects the several high prices that happened during the uptrend (bullish). With this additional uptrend line, we have a uptrend channel in here. The upper limit acts as resistance (the selling area) and the lower limit acts as support (the buying area). In other word, we buy the stocks when the price level is near or reaches the lower limit and sell the stocks when the price level near or reaches the upper limit.
In here, we can do buying and selling activities again and again as long as the price movement is inside the channel which can improve our profit amount significantly. As from sample below, we can do four buying and four selling activities before the channel is broken down. It would be more beneficial if compare with one time buying and selling during the same time range.
Make Money In Stocks #2: Downtrend (Bearish) Channel
As you can see, I have added an additional downtrend line in chart above. This additional line connects several low prices that happened during the downtrend (bearish). With this additional line, we have a downtrend channel in here. The upper limit acts as resistance (selling area) and the lower limit acts as support (buying area). It means even though the chart is in downtrend (bearish), we still have the area in where we can buy the stocks as well as the area in where we can take profit.
From the chart above, it is obvious, even though the market is in downtrend (bearish), we still can do the multiple buying and selling to gain the significant profit from our stocks trading activities. Please be notified that we can do this strategy as long as the price movement is still inside of the channel. If the channel is broken (either up or down), the strategy should be changed immediately.
Make Money In Stocks #3: Nontrend (Sideways) Channel
This time is different – I do not need to add any additional trendline since for nontrend (sideways), there are already both of the upper limit and lower limit which acts as support (buying area) and resistance (selling area). The strategy is still simple – buy on the support and sell on the resistance. From the chart above, we can do three buying and two selling activities which is obviously more beneficial than stay away from the nontrend market (as what normally done by the trader).
So in here, even though the market is in nontrend (sideways), we still can gain a good profit from our stocks trading activities. However, please be aware that we can only do this strategy as long as the price movement is still inside the channel. If the channel is broken (either up or down), the strategy should be changed immediately.
Have a good day to make money in stocks by using trendline everyone!