Trade Stock Indices

Index Trend Line Break

After price has moved in one specific direction for an extended time period within a channel it reaches a point where it then stops moving within this channel. When this happens we say the trendline has been broken.

Since the line is point of support or resistance then we expect the market to go towards the in the opposite market trend trend trend trend trend trend direction. When this happens traders will close-out the stocks orders that they had bought or sold. This is referred to as booking profit.

Up trend Reversal

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

Indices Trend break and trend Reversal - How Do I Trade Stock Trend Line Break Reversals in Stock Index?

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

Down trend Reversal

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

Down trend Reversal - How to Trade Stock Trend Line Break Reversals in Index

Downwards Channel break

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

NB: Sometimes when price breaks its trend it might first consolidate before heading in the in the opposite trend trend trend trend trend trend direction. Either way it's always good to take profit when the trading market direction reverses.

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

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

Another tip is to wait for the trendline to be broken and for the trading market to close above/below it to confirm this signal.

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

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

  • Upwards Market Direction Reversal - this signal gets to be confirmed once the trading market closes below this upward line, this should be the correct time to open a sell short trade position, so as to avoid a trade fake out.

  • Down-wards Market Direction Reversal - this signal is confirmed once the trading market closes above the downwards line, this should be the right time to open a buy long trade, so as to avoid a trade whipsaw.

Combining with Double Tops or Double Bottoms Setup Patterns

A good trade set up to combine this trading set-up with is the double tops and double bottom patterns. Read Double Top & Double Bottom Chart patterns Guide.

This set-up should already have formed before the trend break signal. Because these double tops & double bottoms are also reversal signals, then combining these 2 setups will give the trader a good probability of avoiding a whipsaw.

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

First Example illustration of Upward Direction Reversal - the Double tops pattern had already formed before the trend break reversal signal setup appeared on the trading chart.

Second Example Illustrations of Downwards Direction Reversal - the Double bottoms trading chart pattern had already formed before the trend break reversal signal setup appeared on the trading chart.

Double Tops Double Bottoms Combined with Trend Line Breaks Reversal

Double Top or Double Bottom Combined with other Reversal Trade Signals

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