Trade Forex Trading

Forex Trend Line Break

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

Since the line is point of support/resistance then we expect the market to move and head towards the in the opposite market direction. When this happens traders will close out the open trade orders which they had bought or sold. This is known as profit booking.

Forex Uptrend Reversal - Forex Upward Trend Reversal

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

Forex Trend Break and Trend Reversal - How to Trade Forex Trend Line Break Reversals

This trend reversal signal is considered to be complete/confirmed with the formation of a lower high or a lower low. This also provides an opportunity to go short once the upward trend line is broken and there is a confirmation pattern which is the formation of a lower high or a lower low.

Forex Downtrend Reversal - Forex Downward Trend Reversal

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

Downtrend Forex Reversal - Forex Downwards Trend Reversal

Downward Channel break

This signal is regarded to be complete/confirmed with the setup formation of a higher low or higher high. This trendline break setup also provides a trading opportunity to buy long once the downward trend line is broken and there is a confirmation pattern of a higher low or higher high.

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

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

If on the other hand the market doesn't immediately head in the direction of the price breakout then it is best to close out the trade because it means the current trend is still holding and it might still have some momentum or if the current trend doesn't continue there might be a price consolidation which might take up some time.

Another tip is to wait for the trend-line to be broken and for the market to close above or below the trend line so that to confirm this trendline break reversal signal.

What happens is that many FX traders open trades waiting for a trend reversal even before the trend-line is broken, only for the price to touch this trendline & for the current market trend direction to hold and the forex currency pair to continue with the current market trend direction.

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

  • Upwards Market Direction Reversal - this upward trend reversal signal gets to be confirmed once the price closes below this up-ward trend line, this should be the right time to open a sell short trade position, so that to avoid a fake out.

  • Downward Market Direction Reversal - this downward trend reversal signal gets to be confirmed once the market closes above the downwards trend-line, this should be the right time to open a buy long trade position, so that to avoid a whipsaw.

Combining Trend Reversal Signals with Double Tops or Double Bottoms Setups

A good trade set up to combine this trendline reversal setup with is the double tops patterns & double bottoms patterns. Read Double Top Chart Setups and Double Bottom Setups Guide.

These double tops or double bottoms chart patterns should already have formed before the trend-line break reversal setup. Because these double tops and double bottoms charts patterns are also reversal signals, then combining these 2 setups will give the trader good probability of avoiding a whipsaw signal.

In the above chart screenshots these double tops and double bottoms chart pattern formations can be confirmed to have formed even before the reversal trendline break signal appeared.

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

Second Example illustration of Downward Direction Trend Line Break Reversal Signal - the Double bottoms chart pattern had already formed before trendline break signal appeared on the trading chart.

Double Tops Double Bottoms Combined with Forex Trend Line Breaks Reversal Signals

Double Top or Double Bottom Combined with other Trend Reversal Signals

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