Forex Trading Trend Line Break

After price has moved in a particular direction for an extended period of time within a channel it reaches a point where the price stops moving within the channel. When this happens we say that the trend-line has been broken.

Since the line is point of support or resistance then we expect the forex market to move toward the opposite direction. When this happens traders will close the open trade orders which they had bought or sold. This is known as taking profit.

Forex Uptrend Reversal - Forex Upward Trend Reversal

When price breaks-out upwards line (support) the market will then move down

This forex trend reversal signal is considered to be complete with the formation of a lower high or a lower low. This also provides a trading opportunity to go short once the upward trend line is broken and there is a confirmation pattern which is the formation of a lower high or a lower low.

Forex Downtrend Reversal - Forex Downward Trend Reversal

When price breaks downward line (resistance) the market will then move up

Downward Channel break

This signal is considered to be complete with the formation of a higher low or higher high. This trendline break setup also provides a trading opportunity to buy long once the downward trend line is broken and there is a confirmation pattern of a higher low or higher high.

NB: Sometimes when price breaks its trend it might first of all consolidate before moving in the opposite direction. Either way it is always good to take profit when market direction reverses.

To trade this trendline break forex trading setup as a trader once you open a new trade in direction of the market trend reversal the price should immediately move in that direction, in a price breakout manner. This means that the market should immediately move in that direction without much of a resistance.

If on the other hand the forex market does not immediately move in the direction of the price breakout then it is best to close out the trade because it means that the current trend is still holding and it might still have some momentum or if the current trend does not continue there might be a price consolidation which might take up some time.

Another tip is to wait for the trend line to be broken & for the market to close above or below the trend line so as to confirm this trend-line break reversal signal.

What happens is that most traders open trades waiting for a trend reversal even before the trend line is broken, only for the price to touch this trend line & for the current market trend direction to hold and the currency pair to continue with the current market trend direction.

Therefore, when trading this trend reversal setup it is best to wait until the price breakout has been confirmed by price closing above or below trendline, depending on direction of the market trend.

• Upwards Market Direction Reversal - this upward trend reversal signal is confirmed once the market price closes below this upward trend line, this should be the correct time to open a forex sell short trade, so as to avoid a whipsaw.

• Downwards Market Direction Reversal - this downwards trend reversal signal is confirmed once the market closes above the downwards trend line, this should be the correct time to open a forex buy long trade, so as to avoid a whipsaw.

Combining Trend Reversal Forex Trading Signals with Double Tops or Double Bottoms Chart Patterns

A good trade set up to combine this forex trend line reversal setup with is the double tops patterns & double bottoms patterns. Read Double Top Chart Patterns & Double Bottom Chart Patterns Guide.

These double tops or double bottoms chart patterns setup should already have formed before the trend-line break reversal signal. Because these double tops and double bottoms charts patterns are also reversal forex signals, then combining these two forex trading setups will give the trader a good probability of avoiding a forex whipsaw signal.

In the above chart screenshots these double tops and double bottoms chart pattern setups can be confirmed to have formed even before the reversal trendline break signal appeared.

First Example of Upward Direction Trend Line Break Reversal Signal - the Double tops chart pattern had already formed before trend break reversal signal appeared on the chart.

Second Example of Downward Direction Trend Line Break Reversal Signal - the Double bottoms chart pattern had already formed before trendline break signal appeared on the chart.

Double Top or Double Bottom Combined with other Reversal Signals