Tant to understand the true meaning of any trends you

tant to understand the true meaning of any trends you identify. Depending
on the type of chart you’re viewing, you’ll also want to establish a solid,
unbroken trendline of your own that graphically displays the unmistakable
direction in which a stock (or stocks) is heading.
S&P 500 Index (SPY): 1983-2009. Notice the trendline in the chart above for the overall stock market was sloping
upward, indicating a bullish, or rising, market.
The point of a trendline is to anticipate reversals (breakouts or falls) so
that you can take a position such as buying, selling or shorting. To draw
a trendline for a rising market (or uptrend) , draw a line aloing the lowest
points in the trend without letting the line cross through prices. The line
should touch at least twice, as shown in the example above.
Also, be sure to watch for subtle changes in a trendline. If you plot the
trendline carefully, you’ll see that your line may take a slightly different
direction. In the above chart, see how the long-term upward sloping trend-
line was broken in 2008? That tells you when the trend is changing, or has
already changed.

115 115
chapter seven • technical analysis: common charts & ter ms
Mark’s Tip!
On Wall Street Survivor you can draw your own trendlines on charts.
Click the Draw Trendlines box to turn it on, and then click on the
chart to mark the beginning and end points of the lines.
How to draw a trendline on Google’s Chart
7.7 Wedges & Flags
A wedge describes a triangular shape formed by the intersection of two
trendlines, which form the apex. The wedge need not be upward-facing;
it can easily be an inverted triangle. A falling, or bearish wedge is often
called a flag since it more resembles a pennant than a regular triangle.
A flag consists of two converging trend
lines which are slanted upward. Unlike
the triangles where the apex is pointed to
the right, the apex of this pattern is slant-
ed upwards at an angle. This is because
prices edge steadily higher in a converg-
ing pattern i.e. there are higher highs and
higher lows. A bearish signal occurs when
prices break below the lower trendline. Bearish Wedge, or Flag

wall str eet survivor • investing 101
116
A bullish wedge or flag consists of
two converging trend lines. The
trend lines are slanted downward.
Unlike simple triangles where the
apex is pointed to the right, the apex
of this pattern is slanted downwards
at an angle as prices edge steadily
lower in a converging pattern of
lower highs and lower lows. A bullish signal occurs when prices break
above the upper trendline.
Since the data creating the design is typically slanted against the current
trend, a descending flag is considered a “bullish” indicator, while a wedge
is viewed as a “bearish” predictor. A typical wedge or flag lasts longer than
one month but less than three months. Longer trends will often create
designs other than a wedge or a flag.