Stock Indices Trendline Break

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

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

Up stock index trend Reversal

When stock index price breaks-out upward line (support) the stock indices market will then move down

This trading signal is considered to be complete with the creation of a lower high or lower low. This also provides a trading opportunity to go short once it is broken.

Down stock index trend Reversal

When stock index price breaks-out downward line (resistance) the stock indices market will then move up

Downward Channel break

This trading signal is considered to be complete with the creation of a higher low or higher high. This also provides a trading opportunity to go long once it is broken.

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

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

If on the other hand the stock indices market does not immediately move in direction of the stock index price breakout then it is best to close out the trade because it means that the stock indices trend is still holding.

Another tip is to wait for the trend line to be broken and for the stock indices market to close above or below it so as to confirm this stock index trade signal.

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

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

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

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

Combining with Double Tops or Double Bottoms Chart Patterns

A good trade setup to combine this stock indices setup with is the double tops and double bottoms patterns. Read Double Tops & Double Bottoms Chart patterns Guide.

This setup should already have formed before the stock indices trend break signal. Because these double tops and double bottoms are also reversal stock indices signals, then combining these two setups will give the trader a good probability of avoiding a stock indices whipsaw.

In the above chart screenshots these stock indices setups can be confirmed to have formed even before the reversal stock index trade signal appeared.

First Example of Upwards Direction Reversal - the Double tops chart pattern had already formed before the stock indices trend break signal appeared on the stock index trading chart.

Second Examples of Downwards Direction Reversal - the Double bottoms stock index trading pattern had already formed before the stock indices trend break signal appeared on the stock index trading chart.

Double Tops or Double Bottom Combined with other Reversal Stock Indices Signals