Adam H. Grimes

“Figure 3.35 shows examples of nonstandard trend lines: FIGURE 3.35 Nonstandard Trend Lines in XLF A is drawn between lows in a downtrend instead of between highs in a downtrend. B is also drawn between lows in a downtrend. Furthermore, it ignores a large price spike in an effort to fit the line to later data. C is more of a best-fit line drawn through the center of a price area. These may be drawn freehand or via a procedure like linear regression. D is drawn between highs in an uptrend. E raises a critical point about trend lines: They are lines drawn between successive swings in the market. If there are no swings, there should be no trend line. It would be hard to argue that the market was showing any swings at E, at least on this time frame. This trend line may be valid on a lower time frame, but it is nonstandard on this time frame. In general, trend lines are tools to define the relationship between swings, and are a complement to the simple length of swing analysis. As such, one of the requirements for drawing trend lines is that there must actually be swings in the market. We see many cases where markets are flat, and it is possible to draw trend lines that touch the tops or bottoms of many consecutive price bars. With one important exception later in this chapter, these types of trend lines do not tend to be very significant. They are penetrated easily by the smallest motions in the market, and there is no reliable price action after the penetration. Avoid drawing these trend lines in flat markets with no definable swings.”
― Adam Grimes, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies