Daily Archives: May 30, 2012

Mean Reversions (by Springheel Jack)

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I'm a trendline and support/resistance level chartist mainly, and these should be important tools in any chartist's toolkit. Both of these are what I would describe as linear support/resistance level tools, as in the case of a trendline it is a straight line moving upwards or downwards at an angle, and in the case of support and resistance levels and areas, these are static levels that have been demonstrated by past market action to be important. 

These can last a very long time indeed, and a good example of that can be found on the BP monthly chart, where I used a 13 year support level on 25th June 2010 to argue for a low in the 26-7 support area, and a three year declining channel to argue further that BP might well close June back above 28. BP bottomed the next day at 26.51 and closed June back above 28. You can see that post here, and it's worth noting as an aside that BP then recovered back to the top of that declining channel, made a potential double-top there, and has since retraced half of the move up from the 26.51 low. The point I'm making is that trendlines and support/resistance levels can last a very long time and have real force.