Stock Trendline Break

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

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

Up stock trend Reversal

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

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

Down stock trend Reversal

When stock price breaks-out downward line (resistance) the stock market then will move up

Downward Channel break

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

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

To trade this 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 stock price breakout manner. This means that the stock market should immediately head in that direction without a lot of resistance.

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

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

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

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

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

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

Combining with Double Tops or Double Bottoms Setups

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

This setup should already have formed before the stock trend break signal. Because these double tops and 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 setups can be confirmed to have formed even before the reversal stock trading signal appeared.

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

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

Double Tops or Double Bottom Combined with other Reversal Signals