Stocks Trend Line Break

After stocks price has moved in a certain direction for an extended period of time within a trading 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 stocks market to move towards the opposite direction. When this happens traders will close the stocks orders which they had bought or sold. This is known as taking profit.

Up stock trading trend Reversal

When stocks price breaks upward line (support) the stocks market will then move down

This 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 it is broken.

Down stock trading trend Reversal

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

Downwards Channel break

This signal is considered to be complete with the formation 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 stocks trend it might first of all consolidate before moving in the opposite direction. Either way it is always good to take profit when the stocks market direction reverses.

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

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

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

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

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

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

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

Combining With Double Tops or Double Bottoms Chart Patterns

A good trade setup to combine this stocks setup with is the double tops and double bottoms chart patterns. Read Double Tops and Double Bottoms Chart patterns Tutorial.

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

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

First Example of Upward Direction Reversal - the Double tops chart pattern had already formed before the stocks trend break signal appeared on the stock chart.

Second Example of Downward Direction Reversal - the Double bottoms stocks trading pattern had already formed before the stocks trend break signal appeared on the stock chart.

Double Tops or Double Bottoms Combined With other Reversal Stocks Signals