Bullish resistance lines
The upward sloping 45 degree bullish support line is drawn from any prominent low point on the chart. A long-term investor would start the line at the lowest point on the chart. A new bullish support line should be started if the initial line is violated. These lines are a very important part of using relative strength in a point and figure format. They provide a standard of performance that almost ensures the achievement of the portfolio’s performance goals. A stock must continuously gain on the market to remain above these
lines.
Bearish resistance lines
The downward sloping 45-degree bearish resistance line is started at a prominent high point on the chart. It may need to be redrawn if the initial line is violated.
Stocks that remain below their 45-degree bearish lines are seriously hurting the portfolio’s performance. They hurt the portfolio twice – (first) they lose performance and (second) they keep the portfolio manager from buying another stock that has a better chance of performing!
By W. Clay Allen CFA
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