Trend Line Break

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

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

Up cfd trend Reversal

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

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

Down trend Reversal

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

Downwards Channel break

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

NB: Sometimes when price breaks its 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 cfd market direction reverses.

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

If on the other hand the cfd 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 cfd trend is still holding.

Another tip is to wait for the cfd trend line to be broken and for the cfd market to close above or below it so as to confirm this trading signal.

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

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

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

• Downward Market Direction Reversal - this signal is confirmed once the cfd market closes above the downward line, this should be the correct time to open a buy long trade, so as to avoid a cfd whipsaw.

Combining With Double Tops or Double Bottoms CFDs Setups

A good trade setup to combine this cfd setup with is the double tops and double bottoms chart patterns. Read Double Top & Double Bottom Chart patterns Tutorial.

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

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

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

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

Double Tops or Double Bottoms Combined With other Reversal Signals