The Application of K-Line in Trend Trading (Part 2)

The Application of K-Line in Trend Trading (Part 1) (Click to read)

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In an uptrend, the meteor line appears at the intersection of the top of the main upswing and the top of the pullback, providing a position squaring sell signal, as shown in Figure 123.

In a downtrend, the meteor line appears at the intersection of the top of the pullback wave and the top of the main downtrend wave, providing a sell signal, as shown in Figure 124.

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Example 1: Meteor lines appear in an uptrend:

Figure 125 is a daily chart of the US dollar against the Canadian dollar from January 2000 to March 2000.

As can be seen from Figure 125, the US dollar against the Canadian dollar is in an upward trend. After encountering the inflection line, a meteor line is formed, and a meteor line is formed again 4 days later, sending an important reversal signal, prompting us to position squaring profits in time. Figure 126 is the trend chart after the US dollar against the Canadian dollar forms a meteor line.

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Example 2: Meteor lines appear in a downward trend:

As can be seen from Figure 127, the US dollar against the Swiss franc has broken through the rising trend line and the inflection line, and has also fallen below the demarcation point A. According to the assumption of trend trading method, it is confirmed that the downward trend will start in the future. At this time, we need to use the golden section theory to predict the possible reversal area and observe whether the K-line reversal pattern is formed in the reversal area. As can be seen from Figure 127, the US dollar against the Swiss franc formed a meteor line reversal, which is our best opportunity to enter the market and sell, with a stop loss at point B.

Figure 127 is a daily chart of the US dollar against the Swiss franc from November 2006 to March 2007.

Figure 128 shows the trend of the US dollar against the Swiss franc after forming a meteor line.

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Example 3: Look at another example of a meteor line reversing in a downtrend:

As can be seen from Figure 129, the USD/CHF broke through the demarcation point A after falling below the uptrend line and the inflection line. The trend trading method assumes that we confirm that the previous uptrend has ended, and the possibility of sideways consolidation in the future will be ruled out. When the price rises to the inflection line, a meteor line forms, sending a reversal signal, providing investors with an important opportunity to sell.

Figure 129 is a daily chart of the US dollar against the Swiss franc from June 2005 to September 2005.

Figure 130 shows the trend of the US dollar against the Swiss franc after forming a meteor line.

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3) Morning Star

The morning star usually consists of three K-lines (sometimes it may consist of four or five), the first is a long female line, the second is a small female or small male line, and the third is a slightly longer male line. The second entity is like the morning sun is about to rise, indicating that the price will rise. As shown in Figure 131.

The first long negative line indicates that the market is falling unilaterally, and the long negative line entity indicates that the intraday short side has an absolute advantage. The negative factors continue to come out to suppress the market, and even if there are many favorable factors, they will be quickly digested by the market. The second K-line downward gap indicates that the market is still in a pessimistic mood at the beginning, and about 90% of investors generally believe that the downward trend will continue. At this time, the intraday long and short sides are competing fiercely, and the pattern is brewing the possibility of dramatic changes. The small positive line indicates that the intraday multi-party is in a dominant position, and the market has not accelerated downward as expected; the third long line indicates that the multi-party began to fully control the market during the intraday, and regained popularity. As the price rises, the multi-party increases its position, and the short side is forced to stop its losses, turning the original short order into a long order and joining the ranks of the long side. The upward trend has been formed and cannot be reversed. The morning star pattern is considered the most reliable reversal pattern.

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In an uptrend, the morning star appears at the intersection of the bottom of the pullback and the bottom of the main uptrend, providing a buy signal, as shown in Figure 132.

In a downtrend, an effective morning star appears at the intersection of the bottom of the main downtrend and the bottom of the correction, providing a position squaring buy signal, as shown in Figure 133.

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Example 1: The morning star appears in an uptrend:

As can be seen from Figure 134, the euro has broken through the downward trend line and the inflection line, and rose above the demarcation point A. According to the assumption of the trend trading method, it is confirmed that the previous downward trend has ended and will start an upward trend in the future. After the current euro is blocked and retraced, it has formed a morning star reversal pattern, which is the best buying opportunity.

Figure 134 is a weekly chart of the euro against the dollar from July 1993 to June 1994.

Figure 135 is the trend chart of the euro against the dollar after the formation of the morning star.

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Example 2: The morning star appears in a downward trend:

Figure 136 is a daily chart of USD/CHF from May 2005 to September 2005. Figure 137 is a chart of the subsequent pullback trend.

As can be seen from Figure 136, the US dollar against the Swiss franc has broken through the rising trend line and the inflection line, and then broke through the demarcation point A. According to the assumption of the trend trading method, the confirmation of the previous upward trend and the future lateral consolidation can be ruled out, and there is only one possibility in the future - the upward trend. At present, after the US dollar against the Swiss franc breaks through the demarcation point A, it forms a morning star shape, suggesting that a correction will be launched in the future.

The current meteor line reversal pattern indicates that the dollar will start a downward trend against the Swiss franc again. At this time, it will be the theoretical sell-out point of the trend trading method, with a stop loss at point B.

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Figure 138 is the downward trend chart after the expansion. Figure 139 is the trend chart after the second formation of the morning star.

As can be seen from Figure 138, the US dollar against the Swiss franc near the inflection line (please find out for yourself) once formed a star reversal pattern, prompting us to buy in time position squaring and take profits.

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4) The twilight star is just the opposite of the morning star. It is the top inverted shape, indicating that night is about to fall. The twilight star is composed of three K lines, the first is a long yang line, the second is a small yang line or a small yin line, and the third is a long yin line. From a morphological point of view, it is similar to the island inversion shape in technical analysis. As shown in Figure 140.

In an uptrend, an effective twilight star appears at the intersection of the top of the main upswing and the top of the correction wave, providing a position squaring sell signal, as shown in Figure 141.

In a downtrend, the effective evening star appears at the intersection of the top of the correction wave and the top of the main downtrend wave, providing a sell signal, as shown in Figure 142

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Example 1: The evening star appears in an upward trend:

Figure 143 is a weekly chart of the US dollar against the Canadian dollar from March 1999 to January 2001.

Figure 144 shows the trend of the US dollar against the Canadian dollar after the formation of the Evening Star.

As can be seen from Figure 143, the US dollar against the Canadian dollar has broken through the downward trend line and the inflection line, and has broken through the demarcation point A. According to the assumption of trend trading method, it will start an upward trend after confirmation. At present, the US dollar against the Canadian dollar forms a twilight star reversal pattern at the inflection line, suggesting that we take profits on the previous long position in time and wait for the opportunity to buy again.

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Example 2: The evening star appears in a downward trend.

Figure 145 shows the daily chart of USD/JPY from April 2001 to August 2001.

Figure 146 shows the trend of the USD/JPY after the formation of the Evening Star.

As shown in Figure 145, the USD/JPY has fallen below the uptrend line and the inflection line, and the previous uptrend has ended.

In the future, there will be a downward trend or a sideways consolidation trend. Since the price has fallen below the demarcation point A, the possibility of sideways consolidation can be ruled out according to the trend trading method, and a downward trend will be initiated in the future.

The current price has formed a twilight star reversal, confirming that the pullback is coming to an end. This will be the best time to sell, and the stop loss point is Stop Loss B.

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5) Doji

Doji is also an important analytical tool for technical analysis. Doji refers to the opening and closing prices at the same price or very close (sometimes with a difference of several units). The upper shadow reflects the highest price of the day, while the lower shadow represents the lowest price. Generally speaking, the appearance of a doji indicates that the long and short prices are evenly balanced.

In an uptrend, a valid Doji appears at the intersection of the bottom of the retracement wave and the bottom of the main upswing, providing a buy signal; a valid Doji appears at the intersection of the top of the main upswing and the top of the retracement wave, providing a position squaring sell signal. As shown in Figure 148.

In a downtrend, a valid Doji appears at the intersection of the top of the retracement wave and the bottom of the main downtrend wave, providing a sell signal; a valid Doji appears at the intersection of the bottom of the main downtrend wave and the bottom of the retracement wave, providing a position squaring buy signal. As shown in Figure 149.

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Example 1: Doji appears in an uptrend:

Figure 150 is a four-hour chart of EUR/USD from February 2007 to March 2007.

Figure 151 is the trend chart of the EUR/USD after the formation of the Doji.

As can be seen in Figure 150, the euro has broken through the downward trend line and the inflection line, and has broken through the demarcation point A. According to the trend trading method, it will start an upward trend after confirmation. At present, the price just pulled back to 38.2% of the rising band and formed a cross reversal. After confirming the end of the adjustment, it is expected to start an upward trend soon.

As can be seen in Figure 151, after the EUR/USD met the inflection line in the upward trend, a doji reversal (meteor line) was formed, indicating that the position squaring a sell signal, indicating that the price will soon start a correction trend.

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Example 2: Doji appears in a downward trend:

Figure 152 is a weekly chart of EUR/USD from February 1999 to December 2000.

As can be seen in Figure 152, the EUR/USD encountered an inflection line during the decline and formed a doji reversal, indicating that the bottom was formed and a pullback trend was about to begin. The last three K lines we talked about before are morning stars, a typical bottom reversal pattern. Therefore, the market provides multiple positions squaring buy signals.

Figure 153 is the trend chart of the EUR/USD after the formation of the doji and the morning star at the inflection line.