Bearish Trendlines on Stock Charts
I was doing some technical analysis yesterday and came across a chart of the Chicago Mercantile Exchange (CME). While looking at it I noticed a very distinct trendline of lower highs since January of this year. I have the chart of CME below which will be a perfect example of what is known as a bearish trendline.
Bearish Trendline Example
Trendline Break
Take a look at the last day shown on the chart and you can see where the trendline has been broken by a big up day. This is a very bullish sign and a good buy point, why? Because this tells us the stock is moving on strength, and has now broken a key resistance area. You almost always want to buy into strength because it gives you the best probability of return on your investment.
So, for a stock like CME if we were to buy right here around $550, we would want to setup a stop loss somewhere back below the trendline, or about 5 – 8% below the purchase price.
