El Paso Corp

Today we've chosen to take a look at El Paso Corp. (NYSE:EP) because it is trading near a long-term ascending trendline that has propped up the price since early 2003. Connecting a series of rising bottoms, as shown in the chart below, is a common method used by traders for gauging strategic points of entry. This chart is a text-book example of how a trendline acts as a level of support during a prolonged uptrend.

Notice how the price is currently within 1% of the trendline. Many short-term traders will choose to set their stop-loss order below the trendline and will wait for a move toward the swing high. You can see how this strategy helps create a favorable risk/reward ratio because little capital is risked for the chance of making a decent return.