We’re at the end of our three-part series on DraftKings.
And we saved the best for last.
Our final discussion centers around trendlines.
Many of you might think you understand how these work.
But we’re going to offer a somewhat unique perspective on the matter.
And best of all…we’ll show you where this analysis already picked out a huge trade opportunity.
Trendlines serve one purpose – to help us identify a trend.
Unlike moving averages which are dynamic, trendlines draw a straight line through two points.
The most common way to do this is to pick swing points, or extremes in price, that sticks out like a sore thumb. Then, you draw a line connecting two or more of them.
Here’s what that looks like on the weekly chart of DraftKings.
The orange boxes show you where the trendlines are connected.
Using a candlestick chart like the one above, you draw a line to connect these ‘swing points.’
Note: Candlestick charts plot the open, high, low, and closing prices on a chart. The area between the open and close is a colored box. Think black lines draw the distance between the open/close and the high/low.
This is different from a line chart which only plots closing prices.
Notice how they stick out farther than other places on the chart. That’s how you know to use them.
The one we’re concerned with is the lower trendline.
Now, let’s combine this along with the moving averages and the Fibonacci retracement lines to see what we get.
You can see how the blue trendline meets the 21-period exponential moving average and the 38.2% Fibonacci retracement all in the same general area.
Individually, none of these indicators would make sense for a trade. But taken together, they create an area with a higher probability of price reversal than others.
Just how powerful is this analysis?
As you can see, while we wrote this series, price already began to test this area.
But we want to show you how things work at a deeper level.
The following is an hourly chart where each candlestick represents 60 minutes of the trading day.
We drew a horizontal purple line to represent the 21-period exponential moving average. All the other lines are the same.
Look at how close the price came intraday to touching the 21-period moving average. We’re talking a difference of $0.08 before shares rose by more than 10%.
You should also notice how the black retracement level landed right in the same area.
Now, take a look at where we are right now. You can see how the stock continues to test this price area.
We already saw it ricochet 10% off it the first go around.
Could the trendline provide the additional boost to send them even higher?
Keeping it in perspective
All this sounds great in retrospect. But it’s not that simple in real-time.
Sometimes these trades work out. Other times they fall flat.
If you placed an order for the purple line, you would have watched the stock miss by $0.08 and laugh in your face.
We’re also performing an analysis on a weekly chart.
Intraday price action is great, but we’re not interested in day trades. This analysis is about investing in a stock for months.
And it could take weeks before the stock decides whether it wants to move higher or lower.
Pro tip: The more often and the longer price challenges a price area, the less likely it is to hold.
Our hot take
Learning the fundamentals of trading helps you whether you trade or invest.
Use what you can when you can to your advantage.
Believe it or not, whether you trade or invest, it’s a marathon, not a sprint.