Trend Line Break - Trading Trend-Line Reversal Signals

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

Since the trendline is the point of support resistance then we expect the market to head towards the in the opposite market direction after a trendline break. This is because the support or resistance zone that the price has been moving along has now been broken. When this happens traders will close-out their open orders that they had bought or sold. This is called taking and booking profit.

Uptrend Reversal - Upwards Trend-Line Break

When price breaks an upwards line (support zone) the market then will start to move down or begin to consolidate at this level before heading down.

Upward Trend-Line Break

This reversal signal is considered to be complete with the formation of a lower high or a lower low - double tops chart pattern. This also provides an opportunity for traders that want to sell Gold metal to go short once the trendline is broken.

Downtrend Reversal - Downward Trend-Line Break

When price breaks downward line (resistance zone) the market then will move up or begin to consolidate at this technical level before heading up.

Downward Trend Line Break

This reversal signal is considered to be complete with the formation of a higher low or higher high - double bottoms chart pattern. This also provides an opportunity for traders who want to buy to go long once the trendline is broken.

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

To trade this trend-line reversal setup as a trader once you open a new position in the direction of the market trend reversal the price should immediately head in that market direction, in a price break-out sort of manner. This means that the market should soon move in that direction without much of a resistance.

If on the other hand the market does not immediately head in the market direction of the price break out then it's best to close out the trade because it means the trend is still holding.

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

What happens is that most traders place trades waiting for reversal even before the trend is broken, only for the price to touch this line and for the ruling market trend direction to hold & the XAUUSD metal prices to continue heading in ruling market trend direction.

Hence, when trading this trend-line break reversal setup it is best to wait until the breakout has been confirmed by price closing above or below the trend line, based on the market direction of the price.

• Upward Market Direction Reversal - this signal gets confirmed once the market closes below this upwards trend line, this should be the correct time to open a short sell trade position, so as to avoid a whipsaw fakeout.
• Downwards Market Direction Reversal - this signal gets confirmed once the market closes above the downwards trend line, this should be the correct time to open a buy long trade position, so as to avoid a whipsaw fakeout.

Combining Together With Double Tops or Double Bottoms Patterns

A good trade setup to combine this trend-line reversal set-up with is the double tops and double bottoms patterns.

This double tops and double bottom chart reversal chart pattern setup should already have formed before the trend break signal. Because these double tops and double bottom are also trend reversal signal setups, then combining these 2 setups will give XAU USD traders a good probability of avoiding whipsaw fakeouts.

In the above chart illustrations these double tops and double bottom chart pattern setups can be confirmed to have formed even before the reversal signal appeared.

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

Second Explanation of Downward Direction Reversal - the Double bottoms setup had already formed before the market trend break reversal signal setup appeared on the Gold metal trading chart.

Double Top or Double Bottoms Combined With other Trend Reversal Signals

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