Indices Trend Line Break

After trading 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 that the trend-line has been broken.

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

Up trend Reversal

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

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

Down trend Reversal

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

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 of all consolidate before heading in the opposite 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 in direction of the trend reversal the price should immediately move in that direction, in a price break-out manner. This means that the trading market should immediately move in that direction without much of a 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 trend-line to be broken and for the trading market to close above or below it so as to confirm this signal.

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

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

• Down-wards Market Direction Reversal - this signal is confirmed once the trading market closes above the downwards line, this should be the correct 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 setup with is the double tops and double bottoms patterns. Read Double Top and Double Bottom Chart patterns Guide.

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

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

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

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

Double Top or Double Bottom Combined with other Reversal Trading Signals