In this video, I discuss the bullish support line, an integral part of point and figure charting. The bullish support line helps us to identify a security’s overall trend, which is the first step in determining its viability as an investment.
Tom Dorsey wrote in his book, Point and Figure Charting, that “Often in investing, it’s what you did not buy that’s responsible for your success”. We’re big believers in this at Mullooly Asset Management, and have found that avoiding investments in negative trends is a great way to stack the odds in your favor.
Any time a security is trading above its bullish support line, it’s said to be in a positive trend. This means that the long term price direction has been upwards. When a security is trading below its support line, it’s said to be in a negative trend. We’ve written before about how bad things tend to happen in negative trends.
How is the bullish support line determined?
Once a stock in a negative trend has formed a base below its bearish resistance line (video on bearish resistance lines coming soon!), we can watch for its first buy signal off the bottom. When we get that first buy signal off the bottom, we go to the lowest column of O’s and draw a line at a 45 degree angle upwards from beneath that column.
Why are support lines important?
To quote Tom Dorsey again, support lines act like brick walls. What Tom means is that securities often bounce right off their support lines. The important thing to remember is that as long as the bullish support line remains intact, the overall trend is still positive. However, when a bullish support line is broken, it is a HUGE deal. When a support line is broken it’s a negative development that usually requires action.